Market Equilibrium

Essay

Market Equilibrium. Various beverages are sold by roving vendors at Busch Stadium, home of the St. Louis Cardinals. Demand and supply of the product are both highly sensitive to changes in the weather. During hot summer months, demand for ice-cold beverages grows rapidly. On the other hand, hot dry weather has an adverse effect on supply in that it taxes the stamina of the vendor carrying his or her goods up and down many flights of stairs. The only competition for this service is provided by the beverages that can be purchased at kiosks located throughout the stadium.
Demand and supply functions for ice-cold beverages per game are as follows:

where P is the average price of ice-cold beverage ($ per beverage), P_K is the average price of beverages sold at the kiosks ($ per beverage), Y is disposable income per household for baseball fans, T is the average daily high temperature (degrees), P_L is the average price of unskilled labor ($ per hour), and P_C is the average cost of capital (in percent).
A. When quantity is expressed as a function of price, what are the ice-cold beverage demand and supply curves if P = $5, PK = $4, Y = $62,500, T = 80 degrees, PL = $10, and PC = 12%.
B. Calculate the surplus or shortage of ice-cold beverage when P = $4, $5, and $6.
C. Calculate the market equilibrium price-output combination.