Question

(2)The following equations describe the market for commodity X. ......(1) Q(p) = 10 + 3P ......... 2 Q(p) = 15 – 2P ......... .......(2) (a)Which of the two equations is the demand equation and which is the supply equation? Explain. (b)Find the equilibrium price and the equilibrium quantity transacted in this market. (c)Find the price elasticity of demand at equilibrium and comment on how the firm could use this information if it considers a price adjustment that seeks to maximize its total revenue. (d) Suppose the adoption of a new technology improves the efficiency of producing this product by 3 units, what would be the impact of the new technology on equilibrium price and equilibrium quantity transacted in this market? (e)Assume a supply shock (prior to the adoption of the new technology) pushes the price of this product $0.75 above equilibrium, comment on the state of instability in this market.

Answer 1

increase in price ② (a) supply will increase with hence supply curve is Q(P = 10 + 3P increase 4 Demand curre will decreased with 1. in price Hence demand curve is 8(P) = 15-24 6 for equilibrium supply = demand 8.CP2 = 2CP).

10 + 3p = 15 -2p => 3P+ 2P = 15-10 = 5p=5 P=1 C (P) = 08(P) = 10+3x1 = 13 p*= 1] Q* = 13 ] @ for adoption of new techpology QCP3 - 60 +3P) +3 đ, (P) : 13 +3P

for equilibrium QECP) - 80CP) 13+3p = 15-22 3p+2p= 15+13 5P = 18 p = 18 = 3.6

PCP) = 0,(P) = 10 + 12 = 10 +3,6 - 13.6 * = 13.6 F = 3.6 ť pop* = 13.6) ogle (13.6-13) x 1 (c) price elasticity - Apl P = (3.6-2)* = 0.6 x 15 = 0.017752 | Qp = 0.017752 2 .6