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Answer to Question #59629 in Microeconomics for ali

Question #59629
Foreign Exchange. Determine the size of the government purchase.
D: P = 680 - 2Q
S: P = 40 + 2Q
Target: P = 500
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.

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