Assume that demand for a commodity is represented by the equation P = 10 – 0.2 Qd, and supply by the equation P = 2 + 0.2 Qs where Qd and Q s are quantity demanded and quantity supplied, respectively, and P is the Price. Use the equilibrium condition Qs = Qd Solve the equations to determine equilibrium price. Now determine equilibrium quantity. Graph the two equations to substantiate your answers and label these two graphs as D1 and S1. Furthermore; assume the demand for this product increases because of a change in income. graph the new demand curve and label as D 2. What will be the new equilibrium price and quantity compare to the initial one. Is this product normal good or inferior good?  |
