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Determine whether widgets are a normal or inferior good

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Reference no: EM133080175

The following represents demand for widgets (a fictional product):DR

Q = 8,000 - 40P + 0.15M - 20P

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

QS = 200P + 10,600

  1. Determine whether widgets are a normal or inferior good, and whether widgets and wodgets are substitutes or complements.
  2. Assume that M = $69,600 and PR = $32. Solve algebraically to determine the equilibrium price and quantity of widgets.
  3. 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?
  4. Now assume two events occur: income changes such that M = $67,500 and supply conditions change such that QS = 200P + 11,725. Solve algebraically for the new equilibrium price and quantity of widgets after these two changes.

Reference no: EM133080175

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