Question

2. Assume that the equation for the demand for bread at a small bakery is $Q^d = 75 - 10P_b + 3Y$, where $Q^d$ is the quantity of bread demanded in loaves, $P_b$ is the price of bread in dollars per loaf, and $Y$ is the average income in the town in thousands of dollars. Assume also that the equation for the supply of bread is $Q^s = 35 + 20P_b - 30P_f$, where $Q^s$ is the quantity supplied, and $P_f$ is the price of flour in dollars per pound. Assume finally that markets clear, so that $Q^d = Q^s$. a. If Y is 10 and $P_f$ is $1, mathematically, determine the equilibrium Q and $P_b$. b. If the average income in the town increases to 15, mathematically, determine the new equilibrium Q and $P_b$.

          2. Assume that the equation for the demand for bread at a small bakery is
$Q^d = 75 - 10P_b + 3Y$, where $Q^d$ is the quantity of bread demanded in loaves, $P_b$ is the
price of bread in dollars per loaf, and $Y$ is the average income in the town in thousands
of dollars. Assume also that the equation for the supply of bread is
$Q^s = 35 + 20P_b - 30P_f$, where $Q^s$ is the quantity supplied, and $P_f$ is the price of flour in
dollars per pound. Assume finally that markets clear, so that $Q^d = Q^s$.
a. If Y is 10 and $P_f$ is $1, mathematically, determine the equilibrium Q and $P_b$.
b. If the average income in the town increases to 15, mathematically, determine
the new equilibrium Q and $P_b$.

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2. Assume that the equation for the demand for bread at a small bakery is
Q^d = 75 - 10Pb + 3Y, where Q^d is the quantity of bread demanded in loaves, Pb is the
price of bread in dollars per loaf, and Y is the average income in the town in thousands
of dollars. Assume also that the equation for the supply of bread is
Q^s = 35 + 20Pb - 30Pf, where Q^s is the quantity supplied, and Pf is the price of flour in
dollars per pound. Assume finally that markets clear, so that Q^d = Q^s.
a. If Y is 10 and Pf is 1, mathematically, determine the equilibrium Q andPb.
b. If the average income in the town increases to 15, mathematically, determine
the new equilibrium Q andPb.

Added by Blanca P.

Principles of Economics

Gregory Mankiw 8th Edition

Instant Answer

Solved by Expert Jaya M

Step 1

Given: Demand equation: Qd = 75P + 3Y Supply equation: Qs = 35 + 20P - 30Pr Substituting the given values into the demand equation: Qd = 75(1) + 3(10) Qd = 75 + 30 Qd = 105 Substituting the given values into the supply equation: Qs = 35 + 20(1) - 30(1) Qs = 35 Show more…

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Solving for equilibrium quantity and price in the given equations: Demand equation: Qd = 75P + 3Y Supply equation: Qs = 35 + 20P - 30Pr a. If Y is 10 and P is $1, mathematically determine the equilibrium Q and P. Substituting the given values into the demand equation: Qd = 75(1) + 3(10) Qd = 75 + 30 Qd = 105 Substituting the given values into the supply equation: Qs = 35 + 20(1) - 30(1) Qs = 35 + 20 - 30 Qs = 25 Since markets clear, Qd = Qs: 105 = 25 + 20P - 30P 105 = 25 - 10P 10P = 80 P = 8 Therefore, the equilibrium quantity (Q) is 105 and the equilibrium price (P) is $8. b. If the average income in the town increases to 15, mathematically determine the new equilibrium Q and P. Substituting the new income value into the demand equation: Qd = 75P + 3(15) Qd = 75P + 45 Since markets clear, Qd = Qs: 75P + 45 = 35 + 20P - 30P 75P + 45 = 35 - 10P 85P = -10 P = -1/8 Therefore, the new equilibrium quantity (Q) is not defined and the new equilibrium price (P) is -$1/8.

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