Question
1.The following represents demand for widgets (a fictional product): Q D = 15,299 - 230P + 0.01M - 1.6P R where P is the price
1.The following represents demand for widgets (a fictional product):
QD = 15,299 - 230P + 0.01M - 1.6PR
where P is the price of widgets, M is income, and PR is the price of a related (fictional) good, the wodget. Supply of widgets is determined by
QS = 165P - 3,199
a.Determine whether widgets are a normal or inferior good, and whether widgets and wodgets are substitutes or complements.
b.Assume that M = $55,000 and PR = $55. Solve algebraically to determine the equilibrium price and quantity of widgets.
c.Generate a 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?
d.Now assume two events occur: income changes such that M = $52,500 and supply conditions change such that QS = 170P - 1,464. Solve algebraically for the new equilibrium price and quantity of widgets after these two changes.
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