Question

Competitive Market Equilibrium. Dozens of Internet Web sites offer quality auto parts for the replacement market. Their appeal is obvious. Price-conscious shoppers can often obtain up to 80 percent discounts from the prices charged by original equipment manufacturers (OEMS) for such standard items as wiper blades, air filters, oil filters, and so on. With a large selection offered by dozens of online merchants, the market for standard replacement parts is vigorously competitive. Assume that market demand and supply conditions for windshield wiper blades can be described by the following relations QD 100 10P (Market demand) Qs 15P (Market supply) where Q is millions of replacement wiper blades and P is price per unit. A. Graph the market demand and supply curves. B. Determine the market equilibrium price-output combination both graphically and algebraically.

Answer 1

a) Qd = 100 - 10P

if P=0, Qd = 100

If Qd = 0, P = 100/10 = 10

It means that the horizontal intercept = (100,0)- where P = 0

While the vertical intercept = (0,10) - where Q = 0

Qs = 15P

If P = 0, Qs = 0

P = 1, Qs = 15...and so on

the graph:

Supply (60, 4) -Demand- Quantity

B)

Market Equilibrium is determined where Qd=Qs

100-10P=15P

100=25P

P*=$4

Q=15*4

Q*=60