The interaction of demand and supply — practice questions

Step 1 — Demand shift: Health report → demand shifts right → P↑, Q↑.

Step 2 — Supply shift: Good harvest → supply shifts right → P↓, Q↑.

Step 3 — Combined effect on Q: Both shifts raise quantity → Q definitely increases.

Step 4 — Combined effect on P: Demand raises P; supply lowers P → P is ambiguous — depends on relative shift magnitudes.

If demand shift is larger → net P rises. If supply shift is larger → net P falls.

Diagram: Draw D₁→D₂ (right) and S₁→S₂ (right). Mark E₁ and E₂. Label Q₂ > Q₁ clearly.

Part a) Equilibrium Calculation

Step 1: Set Quantity Demanded equal to Quantity Supplied (Qd = Qs) to find the equilibrium price (P). 2,000 - 15P = -400 + 25P

Step 2: Solve for P. Add 15P to both sides: 2,000 = -400 + 40P Add 400 to both sides: 2,400 = 40P Divide by 40: P = 2,400 / 40 **Equilibrium Price (P) = $60**$

Step 3: Substitute the equilibrium price back into either the demand or supply equation to find the equilibrium quantity (Q). Using the demand equation: Qd = 2,000 - 15(60) = 2,000 - 900 = 1,100 Using the supply equation: Qs = -400 + 25(60) = -400 + 1,500 = 1,100 Equilibrium Quantity (Q) = 1,100 pairs of shoes

Part b) Market Disequilibrium Calculation

Step 1: Identify the imposed price and compare it to the equilibrium price. The maximum price is set at $50. This is below the equilibrium price of $60. Therefore, we expect an excess demand (shortage).

**Step 2: Calculate the quantity demanded (Qd) at the price of $50.**$ Qd = 2,000 - 15(50) = 2,000 - 750 Qd = 1,250 pairs

**Step 3: Calculate the quantity supplied (Qs) at the price of $50.**$ Qs = -400 + 25(50) = -400 + 1,250 Qs = 850 pairs

Step 4: Calculate the size of the shortage. Shortage = Qd - Qs Shortage = 1,250 - 850 Shortage = 400 pairs of shoes

Conclusion: At a maximum price of $50, there will be an excess demand (shortage) of 400 pairs of running shoes.