Question
The industry analysts have long recognized that there is a high degree of complementarity between automobile tires and gasoline. A recent study done by an
The industry analysts have long recognized that there is a high degree of complementarity between automobile tires and gasoline. A recent study done by an automobile industry trade group estimated the following supply and demand functions:
QDT= 5,250,000 - 12,500PT- 750,000PG
QST= -350,000 + 11,750PT
QDG= 80,500,000 - 30,000,000PG- 2,500PT
QSG= 35,000,000 + 15,000,000PG,
whereODTandQSTrefer to quantities of tires demand and supplied each month measured in sets of four,QDGandQSGrefer to quantities of gasoline demanded and supplied each month measured in gallons,PGis the price of gasoline per gallon, andPTis the price per set of four tires.
Calculate the equilibrium price and quantity that will prevail in both the tire and gasoline markets. (Hint: Recall that QD must equal QS in each market. There are 4 equations and 6 unknowns. You need to figure out how to reduce the 4 equations and 4 unknows and then proceed with the rest of the question).
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