Assume that demand for a commodity is represented by the equation P = 30 – 0.2 Q d, and supply by the equation P = 20 + 0.2 Qs where Qd and Q s are quantity demanded and quantity supplied, respectively, and P is the Price. Use the equilibrium condition Qs = Qd , 1: Solve the equations to determine equilibrium price.

2: Now determine equilibrium quantity.

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3: Graph the two equations to substantiate your answers and label these two graphs as D1 and S1.

4: Furthermore; assume the demand for this product increases because of a change in income.

A: graph the new demand curve and label as D 2.

B: What will be the new equilibrium price and quantity compare to the initial one.

C. Is this product normal good or inferior good?

 

 

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