Q2. The demand for a particular product is given by
Qdx= 1000 -20Px + 10PS – 10PC + 6M
The supply for that product is given by
Qxs = -180 + 40Px -40C
P = the price of the good; PS = the price of a substitute; PC = the price of a complement; M = the consumer’s income; C = the marginal cost of producing the good.
Suppose PS = 5; PC = 8, M = 25, C = 20.
a) Calculate the equilibrium price and quantity in this market.
Now suppose that the price of a substitute rises to 11.
b) Calculate the new equilibrium price and quantity.
c) How does the price and quantity compare to the original price and quantity?
d) How does the increase in the price of the substitute affect the demand for the good?