Suppose the market for potatoes can be expressed as follows: Supply:

Suppose the market for potatoes can be expressed as follows:

Supply: QS = -20 + 10p
Demand: QD = 400 – 20p

If the government sets a maximum price of $10 per unit, what will be the quantity demanded and quantity supplied?

ANSWER

With a maximum price of $10, suppliers will sell only 80 units. (Q = -20 + 10(10 ) = 80 ). But at a price of $10, buyers wish to purchase 200 units: Q = 400 – 20(10 ) = 200. Thus, there will be excess demand of 120 units.