Equilibrium in a two commodity market, Managerial Economics

Assignment Help:

Equilibrium in a two commodity market

Let us consider a two-commodity market model in which the two commodities are related to each other.  Let us assume the functions for both commodities are linear.  The two commodities are complementary commodities say (cars (c ) and petrol (P).  The functions representing the commodities are as follows:

Qdc = 820 - 10 Pc - 4Pp                                  Qdp = 590 - 2Pc - 6Pp

Qsc = -120 + 6Pc                                                     Qsp = - 240 + 4Pp

At equilibrium,

1)       Qdc = Qsc                                          

820 - 10Pc - 4Pp = - 120 + 6Pc

       940 - 16Pc - 4Pp = 0

2)       Qdp = Qsp

590 - 2Pc - 6Pp = -240 + 4Pp

830 - 2Pc - 10Pp = 0

There are now therefore two equations:

940 - 16Pc - 4Pp = 0. .....................(i)

830 - 2Pc - 10Pp = 0  ......................(ii)

Multiply (ii) by 8 which gives (iii).  Subtract (i) from (iii) to eliminate Pc and solve for Pp.

6,640 - 16 Pc - 80Pp = 0..(iii)

- (940 - 16Pc -   4Pp = 0  ...................(i)

5,700             -  76Pp = 0

                          Pp = 75

Substituting Pp = 75 in (i) we obtain:

940 - 16Pc - 4(75) = 0

16pc = 640

Pc = 40

Substituting Pc = 40 and Pp = 75 into Qd or Qs for each market

1)       Qdc = 820 - 10 (40) - 4 (75)

= 820 - 400 - 300

Qdc = 120 = Qsc

2)       Qdp = 590 - 2 (40) - 6 ( 75)

= 590 - 80 - 450

Qdp = 60 = Qsp


Related Discussions:- Equilibrium in a two commodity market

Burden of the national debt, Burden of the national debt The extent of...

Burden of the national debt The extent of the burden on a nation of public debt, depends in the first place on whether it is an external or an internal debt.  The burden of th

Question 1, The market demand for brand X has been estimated as Qx=1500-3Px...

The market demand for brand X has been estimated as Qx=1500-3Px-0.05I-2.5Py+7.5Pz

Dynamics of unemployment and real wages, Dynamics  of Unemployment and  ...

Dynamics  of Unemployment and  Real  Wages through Productivity Shocks   The model  that you  are  studying here  is  in  the  tradition of  the  real  business cycle theory th

Simple macro model, Using the same simple macro model we developed in Modul...

Using the same simple macro model we developed in Module 2: a.  Show what will happen to national income (GDP) if the administration implements another $100 (billion) stimulus s

Effect on a consumer''s equilibrium, Problem: (a) Explain with the help...

Problem: (a) Explain with the help of a diagram, the effect on a consumer's equilibrium, of an increase in the price of commodity X while the consumer's money income and price

What do mean by convex isoquant, Q. What do mean by Convex Isoquant? I...

Q. What do mean by Convex Isoquant? Isoquants are convex to the origin: At any point of an isoquant,the slope is negative. Its numerical value measures the marginal rate of te

State the theory of capital and investment, Theory of Capital and Investmen...

Theory of Capital and Investment:  Theory of Capital and Investment evinces the below significant issues:  Selection of a viable investment project Efficient allocatio

Factors affecting the ability of trade unions, FACTORS AFFECTING THE ABILIT...

FACTORS AFFECTING THE ABILITY OF TRADE UNIONS TO GAIN LARGER WAGE INCREASES FOR ITS MEMBERS The basic factor is elasticity of demand for the type of labour concerned.  The ela

Collective bargaining, Collective bargaining Collective bargaining  ...

Collective bargaining Collective bargaining  refers to the whole process by which trade unions and employers (or their representatives) arrive at an enforce agreements.  Tra

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd