The following represents demand for widgets: Q D = 680 – 9P +0.006M – 4P R , whe
ID: 1193196 • Letter: T
Question
The following represents demand for widgets: QD = 680 – 9P +0.006M – 4PR, where P is the price of widgets, M is income, and PR is the price of a related good, the wodget. Supply of widgets is determined by QS = 30 + 3P.
a) Generate a 2010 supply/demand graph in Excel. Be sure that P is the vertical axis and Q the horizontal. Does the graphical equilibrium correspond to your algebraic equilibrium?
b) Now assume two events occur: income drops to $13,000 and supply conditions change such that QS = 50 + 3P. Solve algebraically for the new equilibrium price and quantity of widgets after these two changes.
Explanation / Answer
(a)
QD = 680 - 9P + 0.006M - 4PR
QS = 30 + 3P
Equating QD with QS,
680 - 9P + 0.006M - 4PR = 30 + 3P
12P = 650 + 0.006M - 4PR
Unless you provide more information on values of M & PR, Excel graph cannot be generated and algebrai equilibrium cannot be obtained. Your question states "Generate a 2010 supply/demand graph" - I assume there must be some data for 2010 which you missed to include.
(b)
Similar problem is in this part also.
Revised supply curve, QS = 50 + 3P
680 - 9P + 0.006M - 4PR = 50 + 3P
12P = 630 + 0.006M - 4PR
12P = 630 + (0.006 x 13,000) - 4PR
12P = 708 - 4PR
To solve for equilibrium, I need the value of PR which is mssing.
Please cross-check for missing data :)
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