In a small country, the demand and supply of kidneys are represented by Q^D = 10,000 - 0.25P and Q^S = 0.5P + 4,000. Which of the following statements is (are) TRUE? A) I, II, and III B) II and III (because the demand curve shifts out, pushing up the price) C) I and II D) III

Question

Quizplus · Accepted Answer

I. The equilibrium price and quantity can be found by setting the demand and supply equations equal to each other:

10,000 - 0.25P = 0.5P + 4,000
14,000 = 0.75P
P = 18,667

Then, Q = 10,000 - 0.25(18,667) = 5,833

Therefore, the equilibrium price is $18,667 and the equilibrium quantity is 5,833 kidneys.

II. The demand curve is downward-sloping, indicating that as the price of kidneys increases, the quantity demanded decreases. The supply curve is upward-sloping, indicating that as the price increases, the quantity supplied increases. The equilibrium will be where these two curves intersect.

If the government introduces a subsidy for kidney donors, the supply curve will shift to the right because more people will be willing to donate kidneys at any given price. This will result in a new equilibrium with a higher quantity and a lower price. This is because the subsidy lowers the cost of producing kidneys, so suppliers are willing to sell kidneys at a lower price and more people are willing to buy them.

III. If the government introduces a price ceiling on kidneys below the equilibrium price, there will be excess demand for kidneys. This means that the quantity demanded will be greater than the quantity supplied, resulting in a shortage of kidneys. Since the price is below the equilibrium price, some people may be willing to buy more kidneys than they need, resulting in an inefficient allocation of resources. In addition, the shortage may create a black market for kidneys, where kidneys are sold at a price above the official ceiling price.

In a Small Country, the Demand and Supply of Kidneys