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There has been a change in the market (Q = 100 - 4
There has been a change in the market (Q = 100 - 4.6P and Q = 75 + 6.2P). The change is represented by the following two equations listed below.
Circle the one correct conclusion that describes the market change. Q = 85 + 6.2P and Q = 100 - 4.6P
a. demand has decreased.
b. demand has increased.
c. supply has decreased.
d. supply has increased.
e. supply has decreased and demand has decreased.
f. supply has increased and demand has increased.
Expert Solution
The best answer is f. supply has increased and demand has increased.
To determine a change in equilibrium quantity (EQ) and equilibrium price (EP) we will set the Supply and Demand equations equal and solve:
BEFORE
100 - 4.6P = 75 + 6.2P
25 = 10.8P
2.31 = P
Q = 100 - 4.6P
Q = 100 - 4.6 ( 2.31)
Q - 10.62
AFTER
85 + 6.2P = 100 - 4.6P
-85 = -10.8 P
7.87 = P
Q = 85 + 6.2P
Q = 85 + 6.2 (7.87)
Q = 48.79
EQ increased from 10.62 to 48.79 while EP increased from 2.31 to 7.87. Therefore we can conclude that demand increased, and supply increased to meet the demand. The best answer is f.
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