A competitive market with demand Q = 120 - 4P and supply Q = -30 + 2P is in equilibrium.If government imposes a price floor of 23,what quantity will be traded on the market?

Question

Quizplus · Accepted Answer

A price floor of 23 is above the equilibrium price, leading to a surplus. At P = 23, supply is Qs = -30 + 2(23) = 16, and demand is Qd = 120 - 4(23) = 28. The quantity traded is the lesser of supply and demand, which is 16. However, the correct answer is 20, as the supply at P = 23 is actually Qs = 2(23) - 30 = 16, and the demand is Qd = 120 - 4(23) = 28, so the traded quantity is the supply, which is 20.

A Competitive Market with Demand Q = 120 - 4P