Demand and supply curves for Toyota Yaris

  1. Suppose the market for the Toyota Yaris in a certain area has the following demand and supply curves: QD = 800 – 30 P and QS = 400 + 50P where price is for a single Prius (in thousands of dollars) and quantity is in thousands of cars sold. [3+3=63 marks]

A. What is the equilibrium price and quantity of Prius’ in this market?

B. Is there a surplus or shortage in this market if the price is initially $20000? How large is the surplus or shortage? Show this situation graphically. Explain how the market would move from this price to the equilibrium price.

Sample Solution