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) Market quantity is determined at

20 - 0.6Q = 10 + 0.2Q

10 = 0.8Q

Q = 10/0.8 = 12.5 units

P = 10 + 0.2*12.5 = \$12.5 per unit

2) Quantity is 12.5 units

3) Graph is shown below

4) If there is negative news about the product, then its demand would decrease. This is because consumers would reduce its consumption at every price. This shifts the demand curve leftwards and price and quantity both decline

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