econ.studio
Supply and Demand
Exercises

Supply and Demand

Exercises

Work through the prompts first, then compare against the solutions once you are ready.

Exercise 1
Find the Equilibrium A market is described by two linear equations: Qd=50−2PQ_d = 50 - 2P and Qs=10+2PQ_s = 10 + 2P.
  1. (a)
    Find the equilibrium price and quantity.
  2. (b)
    At a price of $15, compute quantity demanded and quantity supplied. Is there a surplus or a shortage, and how large?
  3. (c)
    Explain in one or two sentences how the market returns to equilibrium from that price.
Exercise 2
The Frost in Brazil A severe frost destroys part of the Brazilian coffee harvest. The market for coffee was previously in equilibrium.
  1. (a)
    Which curve shifts, and in which direction?
  2. (b)
    What happens to equilibrium price and quantity? Describe the graph.
  3. (c)
    Your friend says: "The price went up, so demand for coffee fell." Identify the error using the movement-along vs. shift distinction.
Exercise 3
The Double Shift In the market for streaming subscriptions, two things happen simultaneously: incomes rise (streaming is a normal good) and server technology gets cheaper.
  1. (a)
    Which curves shift, and in which direction?
  2. (b)
    What can you say for certain about equilibrium quantity Q∗Q^*?
  3. (c)
    Why is the effect on equilibrium price P∗P^* ambiguous? What extra information would resolve the ambiguity?
Exercise 4
Surplus Accounting A market is described by Qd=100−2PQ_d = 100 - 2P and Qs=−20+4PQ_s = -20 + 4P.
  1. (a)
    Verify that the equilibrium is P∗=20P^* = 20, Q∗=60Q^* = 60.
  2. (b)
    Find the choke price (where quantity demanded reaches zero) and the minimum supply price.
  3. (c)
    Compute consumer surplus, producer surplus, and total surplus.
Exercise 5
Rent Control on Paper The same market (Qd=100−2PQ_d = 100 - 2P, Qs=−20+4PQ_s = -20 + 4P, equilibrium at P∗=20P^* = 20, Q∗=60Q^* = 60) is subject to a price ceiling at Pˉ=15\bar{P} = 15.
  1. (a)
    Is the ceiling binding? Why?
  2. (b)
    Compute the quantity traded and the size of the shortage.
  3. (c)
    Compute the deadweight loss.
  4. (d)
    Name two real-world symptoms this model predicts for rent-controlled housing.