Answer to Question #165949 in Microeconomics for Rhomonia

Question

Imagine the market for Good X has a demand function of QDX = 100 – 2PX – 4PY + .05M + 0.1AX, and a supply function of QSX = 4PX – 10, where PX is the price of Good X, PY is the price of Good Y, M is the average consumer income and AX is the amount spent to advertise Good X. If PY is $3, M is $24,000, AX is $500, find the equilibrium price of Good X

Answer 1

At equilibrium, Qd=Qs.

The demand equation is:

• QDX = 100 – 2PX – 4PY + .05M + 0.1AX

If PY is $3, M is $24,000, AX is $500, then:

• QDX = 100 – 2PX – 4(3) + .05(24000) + 0.1(500)
• QDX = 1350– 2PX

The supply equation is:

• QSX = 4PX – 10

Equating the demand to the supply, we get:

• 4PX-10= 1350– 2PX
• 6PX=1360
• PX=$226.67