Question

Assume that demand for a commodity is represented by the equation P = 20 – 0.6...

Assume that demand for a commodity is represented by the equation P = 20 – 0.6 Q d, and supply by the equation P = 10 + 0.2 Qs where Qd and Q s are quantity demanded and quantity supplied, respectively, and P is the Price. Use the equilibrium condition Qs = Qd 1: Solve the equations to determine equilibrium price. 2: Now determine equilibrium quantity. 3: Graph the two equations to substantiate your answers and label these two graphs as D1 and S1. 4: Furthermore; using demand and supply show what happen to equilibrium price and quantity if eating this product causes cardiac problem.

1) P = 20 - 0.6 Q d

0.6 Q d = 20 - P

Q d = 20 / 0.6 - P / 0.6 ...........(1)

P = 10 + 0.2 Q s

P - 10 = 0.2 Q s

P / 0.2 - 10 / 0.2 = Q s ............(2)

Equate 1 and 2 , that is Q d = Q s

20/0.6 - P/0.6 = P/0.2 - 10/0.2

20/0.6 + 10/0.2 = P/0.2 + P/0.6

33.34 + 50 = 10 P / 2 + 10 P /6

83.34 = 40 P / 6

83.34 * 6 = 40 P

500.04 / 40 = P

Thus equilibrium price = \$ 12.501

2) Equilibrium quantity

Q d = 20 / 0.6 - P /0.6

Q d = 20 / 0.6 - 12.501 / 0.6

Q d = 33.34 - 20.835 = 12.505

3) The following are the graphs of Demand curve and supply curve depicted as D 1 and S 1 respectively. The two equations are graphed by substituting the values quantity in the equations. Demand curve is downward sloping curve whereas supply curve is upward sloping curve.

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