Question

2. Consider Market Model (а, b > 0) (c, d >0) Demand: Q%3Dа — БР Q%3D-с + dP Supply: 1) Discuss in words the meaning of each

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Answer #1

Due to presence of HOMEWORKLIB POLICY, I am answering 3 questions.

1.

Demand equation shows that quantity demanded is dependent on price and they are negatively related. Rise in 1 unit of price causes fall of b units in quantity demanded.

Supply equation shows that quantity supplied is dependent on price and they are positively related. Rise in 1 unit of price causes rise of d units in quantity supplied.

2.

In equilibrium, we have:

Demand = Supply

3.

Changes in P*:

  • P rises in both a and c. Economic reasoning: High autonomous demand and low autonomous supply raises price
  • P falls in both b and d. Economic reasoning: Flatter the demand and supply, lesser the price.

Changes in Q*:

  • Q falls in both b and c. Economic reasoning: Steeper demand and less autonomous supply implies less Q.
  • Q rises in a. Economic reasoning: Greater the autonomous demand, greater the Q.

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Have a nice day ahead!

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