Question #59629

Foreign Exchange. Determine the size of the government purchase.
D: P = 680 - 2Q
S: P = 40 + 2Q
Target: P = 500

Expert's answer

D: P = 680 - 2Q

S: P = 40 + 2Q

In equilibrium Ps = Pd and Qs = Qd, so:

680 - 2Q = 40 + 2Q,

4Q = 640,

Q = 160 units.

P = 680 - 2*160 = $360.

If the target price is P = 500, then the quantity demanded is:

500 = 680 - 2Q,

2Q = 180,

Q = 90 units.

The quantity supplied is:

500 = 40 + 2Q,

2Q = 460,

Q = 230 units.

So, there is a surplus of 230 - 90 = 140 units and the size of the government purchase is G = 500*140 = $70,000.

S: P = 40 + 2Q

In equilibrium Ps = Pd and Qs = Qd, so:

680 - 2Q = 40 + 2Q,

4Q = 640,

Q = 160 units.

P = 680 - 2*160 = $360.

If the target price is P = 500, then the quantity demanded is:

500 = 680 - 2Q,

2Q = 180,

Q = 90 units.

The quantity supplied is:

500 = 40 + 2Q,

2Q = 460,

Q = 230 units.

So, there is a surplus of 230 - 90 = 140 units and the size of the government purchase is G = 500*140 = $70,000.

## Comments

## Leave a comment