Question

Q(p) = 10 + 3p
Q(p) = 15 - 2p^2

(2)The following equations describe the market for commodity X. Q(p) = 10 + 3P.. 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

a. The law of demand shows that as price increases, quantity demanded falls. There's a negative relationship between price and quantity. Hence the slope has a negative sign.

The law of supply shows that as price increases, quantity demanded also increases. There's a positive relationship between price and quantity supplied. Hence, the slope has a positive sign.

b. At equilibrium, supply equals demand.

c.
&= 17L + ok + 0.6 Lakes ALLE 9 - 18 + 9. +06 k =17+9.5+0.6 K 1 +0.64 - 9+0.6L = 015 ok 1770.6K :0-41-05 MB= 2 a 0.5-0.6 = 14 +0.24K L . MPx = a = 9+0.64 0. 5K 0:4,-0.5 9 +0.32K. 8(P) = 10 +3p- o 8(P) = 16-2pm Equan - demand equan. Equan 1 supply equat. dit equion, 10 +3p=15-2p2. 20² + 30 - 5=0 (6 20 + 5p-20-5=0 - P (2p+5) - (20+5)=0 (20+5)(p-1) = 0 p=-5/ or p=1 [Not possible, since price can not be negative

lence, equin pericol. 10./phil SVE104 3.1 price elasticity of demand at equm (E) 2 8 . as f. đó có Od = 15-2p asd = – Ap. ap :: E= -4p. -- 48 Since elasticity of demand at equian a negative, change in quantity demaunded it moves in one direction l change in frice moves in another direction. If the Linn could use this information, ich ut considers a brice adjustment that seeks to maximize it total revenue, the price adjustment would affect the quantity demanded negatively . . y The adoption of a new technology improves the efficiency of producing this produel-by 3 units, supply of producing this product will increase Hence, the so care

Vill shet quantity & sightwards, increasing equide decreasing proice: