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Calculating effect of a price ceiling - example HL Only!!!!!

Letīs Do Some Economics!

Assume a linear demand function of the form:

Qd = 85 - 5P

and a linear supply curve of the form:

Qs = -20 + 10P

Using these demand and supply functions, answer the following questions. Once you have had a go at the questions, follow the link below to compare your answers.

  1. Calculate the quantities demanded and supplied for prices from $1 - $15.
  2. Plot these figures to give the demand and supply curves for the product.
  3. Using simultaneous equations, calculate the equilibrium price and output.
  4. The government then imposes a price ceiling of $4 on the market. Show this on the diagram.
  5. Calculate the excess demand as a result of this price ceiling.
  6. Calculate the level of consumer expenditure:
    1. before the price ceiling was imposed
    2. after the price ceiling was imposed