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

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

ELASTICITY OF DEMAND, THE COMPANY WOULD TO INCREASE THE PRICE OF STEEL IT...

THE COMPANY WOULD TO INCREASE THE PRICE OF STEEL IT SELLS BY 6% THE MANAGEMENT FORECAST ED THAT INCOME WILL RISE BY 4% NEXT YEAR AND THAT PRICE OF ALUMINIUM WILL FALL BY 2%. IF THE

Real vs nominal gnp, Real Vs Nominal GNP: "Deflating" by a price Index   ...

Real Vs Nominal GNP: "Deflating" by a price Index   One of the problems that confront economists when measuring GNP is that they have to use money as the measuring rod.  Thes

Increase in demand - effect on equilibrium price, Increase in demand ...

Increase in demand SS is the supply curve and D 1 D 1 the initial demand curve shifts to the right, to position D 2 D 2 .  P 1 is the initial equilibrium price and q 1

Demand-pull inflation, Demand-pull inflation is when aggregate demand exce...

Demand-pull inflation is when aggregate demand exceeds the value of output (measured in constant prices) at full employment.  The excess demand of goods and services cannot be met

Quantity theory of money, The quantity theory of money In the 17 th C...

The quantity theory of money In the 17 th Century it was noticed that there was a connection between the quantity of money and the general level of prices, and this led to th

Marginal utility approach, Marginal utility approach The downward slop...

Marginal utility approach The downward sloping nature of the demand curve can be explained by using the law of diminishing marginal utility .  For instance, consider a consum

PRODUCTION THEORY, Q=5K0.4 L0.6 WHERE K is number of mchine,L s number of l...

Q=5K0.4 L0.6 WHERE K is number of mchine,L s number of labour, price of unit is RM24 & wages og each lanour rm12. the company constraint by it budget rm 1500 per time period. a) co

Calculate cost of a unit of labor, Suppose a firm's budget were large enoug...

Suppose a firm's budget were large enough to employ 100 units of either labor or capital, the cost of a unit of labor being the same as a unit of capital. The production function i

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

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