The market for whisky in Scotland is described by the following demand and supply equations:

where P is the price of a liter of whisky and Q is the number of liters sold per week, in thousands. Suppose the Scottish government mandates a price of ?60 per liter.

a. ? Is the market in equilibrium? Why or why not?

b. ? At the government?s price, is there an excess demand or excess supply of whisky?

c. ? Suppose that the government decides to let the price of whisky be determined by the market rather than by the government. Based on your answer to (b), would you expect the price of whisky to increase, decrease, or stay the same? Explain your reasoning intuitively.

Transcribed Image Text:

Dem and: Q = 80 - P Supply: Q = -40 + 2P