1 demand and supply curves the following relations describe...

Demand and Supply Curves. The following relations describe monthly demand and supply relations for dry cleaning services in the metropolitan area: QD = 500,000 - 50,000P (Demand) QS = -100,000 + 100,000P (Supply) where Q is the quantity measured by the number of items dry cleaned per month and P is the average price in dollars. A. At what average price level would demand equal zero? B. At what average price level would supply equal zero? C. Calculate the equilibrium price/output combination. D. Draw the demand and supply curves.

Transcript

00:01 So here we're given some information about the market.

00:03 We're told that the demand curve is equal to 500 ,000 minus 50 ,000 p.

00:12 We're told that the supply curve is equal to minus 100 ,000 plus 100 ,000 p.

00:21 And we want to think about sketching these ones, and the questions that were asked here are designed to lead us to the right place, right? so that we can sketch these things accurately.

00:37 So a, we want to find p such that quantity demanded is equal to zero, right? this is what a is asking us.

00:48 At what average price level would demand equal to zero.

00:51 Well, if we plug in for demand equals zero, we get zero is equal to 500 ,000 minus 50 ,000 p.

01:00 And we can immediately see that.

01:02 That p is going to need to be 10.

01:05 So for the demand curve, at a price of 10, the quantity demanded will be zero.

01:11 This is giving us a point on the demand curve, right? similarly for supply, the question is, at what price does quantity supplied equal to zero, right? well, again, we can just plug in.

01:26 We write 0 equals minus 100 ,000 plus 100 ,000 sorry one mean one more zero and we immediately get that p is equal to one right if you plug in p equals to one those terms cancel out so for the supply curve the vertical intercept is a hundred so we now want to figure out the we can see that if we draw the demand curve right the demand curve is going to go down and the supply curve is going to go up right there's a positive demand sorry negative demand slope, a positive supply slope...

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