Question

IUUuIe -roauction, Supply & Demand Module One: Assessment The following represents demand for widgets (a fictional product: OD 700-100P + 0.5M +30PR where P is the price of widgets, M is income, and Pe is the price of a related (fictional) good, the wodget. Supply of widgets is determined by Qs 900+57.5P Widgets are and widgets and wodgets are Select one a. a normal good; substitutes. b. an inferior good; substitutes. c. a normal good; complements d. an inferior good; complements. Now assume two events occur income falls to $58,000 and supply conditions change such that Qs =-300 + 50P. Solve algebraically for the new equilibrium price of widgets after these two changes Answer: Solve algebraically for the new equilibrium quantity of widgets after these two changes. Answer PhotoGrid

Answer 1

Q_D = 700 - 100 p + 0.5 m + 30 P_R Q_s = 900 + 57.5 p widgets are normal goods because as Income rise we see demand of widgets as rises. Also widget & widgets are substitute goods because if P_R rise then demand of widget rise \r\n Now income is 58,000 Q_a = -300 + 50 p Equilibrium = > Q_D = Q_S 700 - 100 P + 0.5 (58000) + 30 P_R = -300 + 50 P 700 - 100 P + 29000 + 30 P_R = -300 + 50 P 30000 + 30 P_R = 150 P P = 30000 + 30 P_R/150 P* = 200 + 1/5 P_R If we are given the value of P_R in any part above then we will get pure numerical value for Quantity (Eq) Inserting P* in Q_s so, Q_s = -300 + 50 (200 + 1/5 P_R) Q* = -300 + 10,000 + 10 P_R Q* = 9700 + 10 P_R