Question

: Assume the demand for a pair of jeans is represented by the equation P=200−0.4Qd. Also the supply of a pair of jeans is represented by the equation P=20+0.2Qs. A)Find quantity and price at equilibrium. B) What are the effects of an increase in the income of consumers and at the same time an improvement in the technology of production on equilibrium price and quantity?

Answer 1

a)

equilibrium is at Qd=Qs

equating both equations

200-0.4Q=20+0.2Q

0.6Q=180

Q=300

P=200-0.4*300

P=80

the quantity is 300 units and price is $80

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B)

quantity increases and price indeterminant

increase in income increases demand good and increases price and quantity both.

Improvement in technology increases supply and decreases price but increases quantity.

so in total effect, the quantity increases and price depend on which is the effect is dominant