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Q: managerial economics ( Answered,   0 Comments )
Question  
Subject: managerial economics
Category: Science
Asked by: hang-ga
List Price: $5.00
Posted: 26 Sep 2002 16:31 PDT
Expires: 26 Oct 2002 16:31 PDT
Question ID: 69497
please decide true of false of the statements and also give the
explain:
 if the demand and supply functions for a good as follows:
   Q(D)= 900-60p and Q(S)=-200+50P
statement1: the equilibrium price is $12 while the equilibrium
quantity is 300.
statement 2: if the supply is constant, but an increase in income
cause customers to be willing and able to buy 220 more units at each
price than previously, the new equilibrium price will be $12 and the
new equilibrium quantity will be 400.
Answer  
Subject: Re: managerial economics
Answered By: rbnn-ga on 26 Sep 2002 16:48 PDT
 
Statement 1. Q(D) describes the demand for the product at a given
price. Q(S) describes the supply of the product at that price.

The demand and supply are in equilibrium if the demand equals the
supply:

Q(D) = Q(S)

900-60 P = -200 + 50 P

1100 = 110 P

P = 10 

Hence, the equilibrium price is 10, and not 12 (so statement one is
false).

On the other hand, the equilibrium quantity is now:

Q(D)=Q(S)= 900-60P = 900-600 = 300

Thus, the equilibrium quantity is indeed 300.

Statement 2:

Now we have

Q(D) = 900-60P + 220
    
     = 1120-60P

To find the equilibrium, we set:

Q(D)=Q(S)

1120-60P = -200+50P

1320 = 110 P

P=1320/110 = 132/11 = 12

The new equilibrium quantity is:

Q(S) = 1120-60*12
     = 1120-720
     =400

So that statement two is true.

----------------
Links: 

http://faculty.babson.edu/aieta/exclcmpn/Ec_1/Ec_1_7/ec_1_7.htm

Search stategy: supply demand function equilibrium
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