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The following represents demand for widgets (a fictional product): QD = 700 – 100P + 0.05M...

The following represents demand for widgets (a fictional product):

QD = 700 – 100P + 0.05M – 30PR

where P is the price of widgets, M is income, and PR is the price of a related (fictional) good, the wodget. Supply of widgets is determined by Qs= 900 + 57.5P

Determine whether widgets are a normal or inferior good, and whether widgets and wodgets are substitutes or complements.  

Assume that M = $61,000 and PR = $250.00. Solve algebraically to determine the equilibrium price and quantity of widgets.

Now assume two events ovvur: 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

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Answer #1

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