Consider a market characterized by the following inverse demand and supply functions: P_X = 10 − 2Q_X and P_X = 2 + 2Q_X. Compute the number of units exchanged and the price at which those units will be exchanged when there is an $8 per unit price floor.

Question

Quizplus · Accepted Answer

When there is a price floor of $8 per unit, we need to find out where the quantity demanded and quantity supplied intersect at a price of $8. Setting the demand and supply functions equal to each other, we get: 10 − 2Q_X = 2 + 2Q_X Simplifying this equation, we get: Q_X = 4 Plugging this value of quantity supplied into either the demand or supply equation, we get the price: P_X = 2 + 2(4) = $10 per unit Therefore, the market will exchange 1 unit at a price of $8 per unit. So, the answer is B.

Consider a Market Characterized by the Following Inverse Demand and Supply