Question

Consider the following US reduced supply and demand equations for commodity X: QdX = 400 – 2Px and QsX = - 100 + 3Px A. If this product can now be export to a make-believe country and the estimated reduced demand equation for this product in this make-believe country is : Qd MB = 400 – Px

What was the new equilibrium price and quantity of this product? Illustrate the old and new equilibria in one diagram.

a. P=$150; Q=350 Units

b. P=$200; Q=450 Units

c. P=300; Q=550

d. P=250; Q=5000

Answer 1

Total demand including domestic and export = Q = QdX = QdMB = 400 – 2Px + 400 – Px

or Q = 800 - 3Px

QsX = - 100 + 3Px

so 800 - 3Px = -100 + 3Px

or 6Px = 900

or Px = 150

Q = 800 - 3*150 = 350

For old case with no export,

400 - 2Px = -100 + 3Px

or 5Px = 500

or Px = 100

Qd = 400 - 2*100 = 200

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