Microeconomics and mathematics (with answers)

1 Markets, demand and supply

Remarks:
• Abbreviations: Q = Quantity / P = Price / Qd = Demand / Qs = Supply
• Qd, Qs, P > 0
• Questions 5 and 6: You have to be familiar with quadratic equations. You can solve them
either by factorization (if possible) or by using the formula.
1.1 Qd = 60 - 3P
Qs = - 40 + 5P

1.11 Calculate the quantity demanded if the price is

•6
• 2.5

1.12 Calculate the quantity supplied if the price is

• 12
• 16.4

1.13 Calculate the market equilibrium (P and Q).

1.14 Rearrange the demand and supply function to obtain inverse functions:
(P = ...)

1.15 Graph this market (x-axis: Q / y-axis: P).

1.2 Which are the demand and the supply function (P = ...) for the following market?

12

Supply

4 Demand

Q
2 4
1.3 P = 4 + 0.5*Qs
1.31 Graph supply.

1.32 When graphing supply, which role do the values of 4 and 0.5 play?

QUESTI01.DOC Page 1 (of 2) 1 Markets, demand and supply 1st June 2012
1.4 Demand and supply on a market:
Price Demand Supply
120 0 80
110 5 70
100 10 60
90 15 50
80 20 40
70 25 30
60 30 20
50 35 10
40 40 0

1.41 Graph this market.

1.42 Find the demand and the supply function (P = ...).

1.43 Calculate the market equilibrium (P, Q).

1.5 Qd = 8 - P
Qs = - 4 + P2

1.51 Calculate the market equilibrium.

1.52 Sketch this market.

1.6 Qd = 8 - 3P
Qs = - 2 + P2

Calculate the market equilibrium.

→ Answers. Click here!

QUESTI01.DOC Page 2 (of 2) 1 Markets, demand and supply 1st June 2012
 Answers Microeconomics and mathematics
1 Markets, demand and supply
1.1 1.11 Price 6, quantity demanded: 60 - 3*6 = 42
Price 2.5, quantity demanded: 60 - 3*2.5 = 52.5

1.12 Price 12, quantity supplied: - 40 + 60 = 20

Price 16.4, quantity supplied: - 40 + 5*16.4 = 42

1.13 Market equilibrium if Qd = Qs

60 - 3P = - 40 + 5 P
- 8P = - 100
P = 12.5
Q = Qd (= Qs) = 60 - 3*12.5 = 22.5

1.14 Qd = 60 - 3P Qs = - 40 + 5P
3P = 60 - Qd - 5P = - 40 - Qs
P = 20 - Qd/3 5P = 40 + Qs
P = 8 + Qs/5

1.15
P

20 Market
Equilibrium
Supply

12.5

8
Demand

Q
22.5 60

1.2 Demand: P = 12 - 3Q d
Supply: P = 4 + Qs
1.3 1.31 Supply: P = 4 + 0.5*Q
P

Supply
6

Q
4

ANSWER01.DOC Page 1 (of 3) 1 Markets, demand and supply 1st June 2012
1.3 1.32 4 = y-intercept (y if x = 0)
cont. 0.5 = slope of the supply curve
1.4 1.41 Graph of the market:
P

120
Supply

Demand
40

Q
40 80
1.42 Demand: P = 120 - 2Q d
Supply: P = 40 + Qs

1.43 Market equilibrium if Pd = Ps and Qd = Qs

120 - 2Q = 40 + Q
- 3Q = - 80
2
Q = 80/3 = 26
3
2 2
P = 120 - 2Q = 120 - 2*26 = 66
3 3
1.5 1.51 Market equilibrium:

• by factorization:
Qd = Qs
8 - P = - 4 + P2
- P2 - P + 12 = 0
- (P2 + P - 12) = 0
- (P + 4)(P - 3) = 0
[P1 = - 4] [no solution because P < 0]
P2 = 3 [because if P = 3 → (3 - 3) = 0]
Qd = 8 - P = 8 - 3 = 5 →Q=5

• by formula:
−b ± b 2 − 4 ac 1 ± 12 + 48
P1 ,P2 = =
2a −2
1 + 1 + 48
2
[P1 = = - 4]
−2
1 − 12 + 48
P2 = =3 Q=8-P=8-3=5
−2

ANSWER01.DOC Page 2 (of 3) 1 Markets, demand and supply 1st June 2012
1.5 1.52 Sketch of the market:

8
Demand

Supply
4
3
2

Q
5 8 12

1.6 Market equilibrium:

• by factorization:
Qd = Qs
8 - 3P = - 2 + P2
- P2 - 3P + 10 = 0
- (P2 + 3P - 10) = 0
- (P + 5)(P - 2) = 0
[P1 = - 5] [no solution because P < 0]
P2 = 2 [because if P = 2 → (2 - 2) = 0]
Qd = 8 - 3P = 8 - 6 = 2 →Q=2

• by formula:
−b ± b 2 − 4 ac 3 ± 3 2 + 40
P1 ,P2 = =
2a −2
3 + 3 + 40
2
[P1 = = - 5]
−2
3 − 3 2 + 40
P2 = =2 Q=2
−2

→ Back to questions. Click here!

ANSWER01.DOC Page 3 (of 3) 1 Markets, demand and supply 1st June 2012