ARANA, JOMAR A.

PRINCILPES OF ECONOMICS
BSIE – B2019 EXERCISE: LESSON 4
Exercises
A. Answer the Following questions:
1. When is the market in equilibrium? Briefly explains your answer.
2. Why is the market cleared of surpluses or shortages at the equilibrium price?
3. How will the market price change if a shortage is present in the market? Why?
4. How will the market price change if s surplus occurs in the market ? Why?
5. Distinguish between Price Ceiling and Price Floor.

B. Suppose the demand and supply of a certain good is defined by the following functions.
Qd = 1300 – 5P Qs = -500 + 4P

1. Solve for the equilibrium price and equilibrium quantity.

2. If the market price is 150, solve for the quantity demanded and quantity supplied. Is there a
shortage or a surplus? How much is the shortage or surplus?
3. If the market price is 250, solve for the quantity demanded and quantity supplied. How
much is the shortage or surplus?
4. Suppose demand increases so that the new demand function becomes Qd = 2200 – 5P
while the supply function does not change. It is still Qs = -500 + 4P. Compute for the new
equilibrium price and new equilibrium quantity.

Answer:
A.
1. When the demand and supply curves are combined, at the intersection of demand and supply we can
find the market equilibrium, which is the only price where the quantity demanded equals the quantity
supplied. It's the exact price at which buyers are willing to buy a product or service and sellers are willing
to sell it. It is the time that consumer, producer, and the seller meet its target price of the product
wherein you can purchase the goods in its retail price.
2. Equilibrium price is also called market clearing price because at this price the exact quantity that
producers take to market will be bought by consumers, and there will be nothing 'left over'. With this
we can balance the needs of the consumer without excess in production and also lessen waste that we
produce.
3. Because of the lack in supplies to meet the demands the price will surely rise up. Because of the
limited supply the consumers are willing to spend money to buy a certain goods with limited supply in a
higher price.

4. A Market Surplus occurs when there is excess supply- that is quantity supplied is greater than quantity
demanded. They will force to sell it in a lower price to eliminate the surplus.
5. A price floor is the lowest possible selling price, beyond which the seller is not willing or not able
(legally) to sell the product. A price ceiling is the opposite – a maximum selling price to stop prices
climbing too high.
B.
Qd = 1300 – 5P Qs = -500 + 4P
1. Solve for the equilibrium price and equilibrium quantity.
1300 – 5P = -500 + 4P 1300 – 5(200) = -500 + 4(200)
1800 = 9P 300 = 300
Pe = 200 Qe = 300

2. If the market price is 150, solve for the quantity demanded and quantity supplied. Is there a
shortage or a surplus? How much is the shortage or surplus?
Surplus?Shortage by 450
Qd = 1300 – 5P Qs = -500 + 4P
= 1300 – 5(150) = -500+ 4(150)
= 550 = 100

3. If the market price is 250, solve for the quantity demanded and quantity supplied. How
much is the shortage or surplus?
Qd= 1300 - 5P Qs = -500 + 4P
= 1300 – 5(250) = -500 + 4(250)
= 50 = 500

4. Suppose demand increases so that the new demand function becomes Qd = 2200 – 5P
while the supply function does not change. It is still Qs = -500 + 4P. Compute for the new
equilibrium price and new equilibrium quantity.
Qd = Qs
2200 – 5P = -500 + 4P
2200 + 500 = 4P + 5P
2700 = 9P
P = 300

Qd = 2200 - 5P Qs = -500 + 4P
= 2200 – 5(300) = -500 + 4(300)
= 700 = 700