Question

The general demand and supply functions for good A are QD-2, 800-6P 0.5M-10PB Qs 40 4P - 8P1+6F where QD is the quantity demanded of good A, Qs is the quantity supplied of good A, P is the price of good A, M is the averaged income level of consumers, Pb is the price of a related good B, Pr is the price of an input, and F is the number of firms producing good A (a) Is good A a normal good or an inferior good? Explain why. (b) Are goods A and B substitutes or complements? Explain why (c) When M $2,000 and PB $200, derive the demand function for good A. (d) When P $90 and F 20, derive the supply function for good A (e) Using the demand and supply functions derived in part (c) and (d), obtain the equilibrium price and quantity of good A. (f) Using the demand function derived in part (c), obtain the point price elasticity of demand for good A at the price of $200.