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 of widgets, M is income, and P_R is the price of a related (fictional) good, the wodget. Supply of widgets is determined by

Q_S = 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 P_R = $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 Q_S = 170P - 1,464. Solve algebraically for the new equilibrium price and quantity of widgets after these two changes.