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Homework answers / question archive / The following represents the demand for widgets (a fictional product): [Math Processing Error]QD=1058−250P−0
The following represents the demand for widgets (a fictional product):
[Math Processing Error]QD=1058−250P−0.0001M−0.5PR,
where [Math Processing Error]P is the price of widgets, [Math Processing Error]M is income, and [Math Processing Error]PR is the price of a related (fictional) good, the widget. Supply of widgets is determined by [Math Processing Error]QS=2+250P.
a. Determine whether widgets are a normal or inferior good and whether widgets and widgets are substitutes or complements,
b. Assume that [Math Processing Error]M=$50,000 and [Math Processing Error]PR=$2.00. Solve algebraically to determine the equilibrium price and quantity of widgets,
c. Generate a supply/demand graph. Be sure that [Math Processing Error]P is the vertical axis and [Math Processing Error]Q the horizontal. Does the graphical equilibrium correspond to your algebraic equilibrium?
d. Now assume two events occur: income rises to [Math Processing Error]$60,000 and supply conditions change such that [Math Processing Error]QS=6+300P. Solve algebraically for the new equilibrium price and quantity of widgets after these two changes.
