Question

Three, pls!!!

Suppose the market demand curve for a product is given by Q“ = 500 – 15P +201 and the market supply curve is given by Q' =-25+10P-10K. Assume initially that I 10 and K 5. 3. %3D %3D 1) What are the equilibrium price and quantity in this market? 2) What are the endogenous variables and the exogenous variables in the equilibrium model above? 3) Suppose K suddenly increases to 20. How will this affect the market equilibrium calculated in part 1)?

Answer 1

Suppose the market demand cuve for a productes given by the ..Qd 500-15p 7201 and the market Supply Curve is given by QSD 2510p-10k _Assuming initially, that I=10 and K25 Now equilibrumi Condition in the market requires - Qd = QS or where demend = Supply . Now Qd = QS implint 500-15pt 20 I 25tloplok - substituting I = 10 cind k= 5 we get? 560-15p 720(10) - 25 +10 p - 10(5) = 500 + 200 - 152 = 25-50 +16 p' =) - 700- 15 Palop -25 vieta =) -25p.3-725 =) p 29 and, equilibrium quantity can be found by substituting P=29 in either demand or supp equation. Hunce, Q dis 500 - 152.201 = 580-15(29)+20(10) € 500 + 200 -_435 © 265 Huce equilibrium Pice is $29 and equilibrium quantityh is 265 hits in the market duo Hiscanner

& Endo genom variables are detumined with the help of the model and Enogenous variably are given in the model and they do not depend on the im natue of the model de Hue Price and quantity are detimined with the help of the model and I and k are given parametus. Huce Puce and quantity are the endogenous variables and I and I are un the enogenom variables of K increasy to 20. then supply equation will be! as 25+ 10P-10 K M *QS= 29.7102 - 1029 a 25 +100 - 200 . SOL-302 Top - 175 Now, equilibrium Condition will be Qs!= -odi - A -) 10P 1752 500 - 15P+205 10 P - 1752 500 - 15P+ 20110) 1.3 => 10p-175 -- 700-150 = - 25p = 875 P : 35 and equilibrium quantity will be Q: 500 - 15P+201 - 500 - 15(35) +20 (10) - 175 anits Scannd with CamSpanner

Hunce pas Suddenly nly k increases to 2o. This the new equilli brim " Price becomes $135-29) or & 7 higher than the enitial init equilibrium and the new coni librium quantity becomes 1265-175 = 90 units lowa them the initial equilibrium Searted withantity Caneanker