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Determine widgets are a normal or inferior good

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Reference no: EM133173818

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

QD = 43,730 - 220P + 0.1M - 2PR

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 = 300P - 8,000

  1. Determine whether widgets are a normal or inferior good, and whether widgets and wodgets are substitutes or complements.
  2. Assume that M = $36,100 and PR = $110. 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 = $34,400 and supply conditions change such that QS = 300P - 6,090. Solve algebraically for the new equilibrium price and quantity of widgets after these two changes

Reference no: EM133173818

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