The demand function for abalone is q = 30 - 9p and the supply function is q = 6p. Suddenly the yuppies discover abalone. The quantity demanded at every price doubles. The supply function, however, remains the same as before. What is the effect on the equilibrium price and quantity?

Question

Quizplus · Accepted Answer

Initially, the demand function is q = 30 - 9p and the supply function is q = 6p. At equilibrium, we have:

30 - 9p = 6p

Solving for p, we get:

p* = $3

Substituting p* into either the demand or supply function gives us q* = 18.

When the quantity demanded at every price doubles, the new demand function is:

q = 60 - 18p

(The coefficient -9 in the original demand function is replaced by -18, reflecting the doubling of the quantity demanded at every price.)

The new equilibrium occurs where this new demand function intersects the original supply function, q = 6p:

60 - 18p = 6p

Solving for p, we get:

p* = $2

Substituting p* into either the demand or supply function gives us q* = 12.

So the equilibrium price decreases from $3 to $2, and the equilibrium quantity increases from 18 to 12, which is an increase but not a doubling. Therefore, the best choice is D: Both price and quantity increase but neither doubles.

The Demand Function for Abalone Is Q = 30 -