Given the demand and supply schedules for semiconductors ina perfectly competiti

Question

Given the demand and supply schedules for semiconductors ina perfectly competitive market:

Qd = 60 - 10P + 0.51               Qs= -10 + 4P - 2C

where I = average income of the demanders of this product

C = unit cost of the inputs used in the production of this commodity.

(a) Find the expression for equilibrium price and equilibrium quantity transacted in this market.

(b) Find the initial equilibrium and quantity and I = 1000 and C = 20

(c) Determine the impact of an increase in income from 1000 to 1200 on the initial equilibrium values

(d) Assume that an improvement in the technology of producing this commodity results in an increase in supply by the factor of 5, how will this development affect the initial equilibrium values ?

Explanation / Answer

a.) for equilibrium Qd = Qs so... 60-10P +0.5I = -10+4P-2C -14P+0.5I+2C+70=0 b.) for I=1000 and C=20... 14P = 0.5*(1000)+2*20+70 14P = 610 P = 43.57 Q = 60 - 10*(43.57) + 500 Q = 124.3 c.) for I = 1200 and C=20... 14P = 0.5*(1200)+2*20+70 14P = 710 P = 50.7 Q = 60 - 10*(50.7)+600 Q = 153 hence the Price increased as well as the quantity increased with the increase in income d.) the increase in supply of the commodity will result in the increase of the quantity of equilibrium and at the same time the price will decrease as now more supply is there and less demand.

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