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Movement along the demand or supply schedule

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Assume that the equation for demand for bread at a small bakery is Qd = 60 - 10Pb + 3Y, where Qd 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 supply of bread is Qs = 30 + 20Pb - 30 Pf, where Qs is the quantity supplied and Pf is the price of flour in dollars per pound. Assume finally that markets clear, so that Qd = Qs . a. If Y is 20 and Pf is $2, solve mathematically for equilibrium Q and Pb. b. If the average income in the town increases to 30, solve for the new equilibrium Q and Pb. Is this change in Q and Pb is due to a shift in the demand or supply schedule or due to a movement along the demand or supply schedule?

Reference no: EM131631593

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