Problem1
1. There are 10,000 identical individuals in the market for commodity “X”, each with a demand function given by
Qdx = 12 – 2Px , and 1000 identical producers of commodity “X”, each with a function given by Qsx = 20Px
Problem5:
•Suppose that from the condition of equilibrium in problem #1, there is an increase in consumers’ incomes so that the market demand curve becomes
QD”x = 140,000 – 20,000Px ,
and at the same time there is an improvement in technology of producing commodity “X” so that the new market
•supply curve becomes
QS”x = 40,000 + 20,000Px .
Everything else remains the same.
1.Show the new market demand curve D”x , and the new market supply curve S”x.
2.What are the new equilibrium price and equilibrium quantity for commodity “X”?
(1)
Since there are 10,000 buyers,
Market demand (QDM) = 10,000 x QDx = 10,000 x (140,000 - 20,000Px)
When QDM = 0, Px = 140,000/20,000 = 7 (vertical intercept)
When Px = 0, QDM = 10,000 x 140,000 = 1,400 million (horizontal intercept)
Since there are 1,000 buyers,
Market supply (QSM) = 1,000 x QSx = 1,000 x (40,000 + 20,000Px)
When QSM = 0, Px = - 40,000/20,000 = - 2 (vertical intercept)
When Px = 0, QSM = 1,000 x 40,000 = 40 million (horizontal intercept)
(b)
In equilibrium, QDM = QSM.
10,000 x (140,000 - 20,000Px) = 1,000 x (40,000 + 20,000Px)
10 x (140,000 - 20,000Px) = (40,000 + 20,000Px)
1,400,000 - 200,000Px = 40,000 + 20,000Px
220,000Px = 1,360,000
Px = 6.18
Q = 1,000 x (40,000 + 20,000 x 6.18) = 1,000 x (40,000 + 123,600) = 1,000 x 163,600 = 163,600,000 = 163.6 million
Problem1 1. There are 10,000 identical individuals in the market for commodity “X”, each with a...
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