Question

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.

Answer 1

Ans .) Finding inverse demand function:

Q_d = 33.33 - 1.67P

Finding inverse supply function:

Q_s = 5P - 50

In equilibrium,

Demand = Supply

33.33 - 1.67P = 5P - 50

83.33 = 6.67P

P = 83.33 ÷ 6.67

Equilibroun price = P = 12.49 = 12.5(approx)

Equilibrium quantity = Q_s = 5(12.5) - 50 = 12.5 units

Ans 3.) Below is the diagram illustrating equilibrium quantity and price.

Ans 4.) If earing this product causes cariac problem , then people become more aware of it and reduce their demand for this product leading to the decline in the equilibrium price and quantity.