Worked example 1
Income rises for a normal good. Show the effect on equilibrium P and Q.
Show solution outline
Normal good → demand shifts right (at each price, Qd higher).
New equilibrium: higher P and higher Q.
Supply unchanged in short run.
2281 · 2.4
Supply — practice questions
Practice and worked examples for 2281 Supply. Short previews only — attempt the full question in MarkScheme against the official scheme.
Worked example 2
The market for coffee beans has the following demand and supply functions: Quantity Demanded (Qd) = 200 - 10P and Quantity Supplied (Qs) = 50 + 5P, where P is the price in dollars per kg and Q is the quantity in thousands of kgs. If the government sets a minimum price of $12 per kg, calculate the resulting surplus or shortage.
Show solution outline
A minimum price is a price floor. To be effective, it must be set above the equilibrium price. We need to calculate Qd and Qs at this new price to determine the market outcome.
**Step 1: Calculate Quantity Demanded at P = Qd = 200 - 10P Qd = 200 - 10(12) Qd = 200 - 120 Qd = 80 (i.e., 80,000 kgs)
**Step 2: Calculate Quantity Supplied at P = Qs = 50 + 5P Qs = 50 + 5(12) Qs = 50 + 60 Qs = 110 (i.e., 110,000 kgs)
Step 3: Determine Surplus or Shortage Since Quantity Supplied (110,000 kgs) is greater than Quantity Demanded (80,000 kgs), there is a surplus.
Step 4: Calculate the size of the surplus Surplus = Qs - Qd Surplus = 110,000 kgs - 80,000 kgs Surplus = 30,000 kgs
Final Answer: The minimum price of $12 creates a surplus of 30,000 kgs of coffee beans.