Quantity Supplied and Quantity consumed

I have plotted a graph with a demand curve equation of: Qd=40-2P
and a supply curve equation of: Qs=2/3P (two thirds)
The world price is 9. There is perfect competition in the market for this good.

I have to determine the quantity consumed and the quantity supplied domestically if there is free trade. Does anyone know how to calculate these two things?

Edit: I have found the equilibrium price to be 14.8. This is part of a second year University course btw.

(edited 7 years ago)

Reply 1

KevinLonge

9

Original post by Phillipo57

I have plotted a graph with a demand curve equation of: Qd=40-2P
and a supply curve equation of: Qs=2/3P (two thirds)
The world price is 9. There is perfect competition in the market for this good.

I have to determine the quantity consumed and the quantity supplied domestically if there is free trade. Does anyone know how to calculate these two things?

Edit: I have found the equilibrium price to be 14.8. This is part of a second year University course btw.

Have you done tariff diagrams before? If so, visualising one may help for you to understand this. Sub in the world price (9) into the Qd equation and the Qs equation. You get Qd = 22 and Qs = 2/27 (assuming you meant 2/3P and not (2/3)*P). You can quite clearly see that Qd is greater than Qs, which is to be expected because in a typical tariff / world trade diagram you will end up with excess demand, due to the fact that foreign suppliers are assumed to be more efficient than most domestic suppliers. The fact that Qs is so low shows us that there are a very few domestic producers who can compete at such a low price, and in doing so they are only capable of supplying 2/27 units without making a loss. The excess demand, which is equal to Qd - Qs (i.e. 22 - 2/27) must be satisfied by imports, so as to fill the gap between domestic quantity supplied (Qs) and domestic quantity demanded (Qs).

So, now knowing that all of Qd is being satisfied, due to the fact that the difference between Qd and Qs is being filled by imports (i.e. foreign quantity supplied), we know that consumption must be equal to Qd. The quantity supplied domestically is just what we figured out earlier (2/27), and so now you are done. Hope that helps.

Reply 2

Phillipo57

OP

10

Original post by KevinLonge

Sub in the world price (9) into the Qd equation and the Qs equation. You get Qd = 22 and Qs = 2/27 (assuming you meant 2/3P and not (2/3)*P).

Thanks very much, I'm seeing it more clearly now. With regards to the 2/3P or (2/3)*P, im not sure which one it actually is. I attached the full series of question to clarify: (its Question 1)

I really appreciate the help as im a bit stuck and I dont want to get it wrong. Would you mind using direct message to help me out?

Edit: Looking at it for a while, I now realise that i did mean (2/3)*P which would actually make 6, not 2/27, but what you say still fits in with the scenario so thanks for helping me understand it. I'd appreciate it if you had a look at Question 1 part b and helped me with it.

(edited 7 years ago)

Assignment 2 Fall Semester 2016.doc33.3KB

Quantity Supplied and Quantity consumed

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