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

What do you mean by ordinal utility, Q. What do you mean by Ordinal utility...

Q. What do you mean by Ordinal utility? A method of analysing utility or satisfaction derived from consumption of services andgoods, based on a relative ranking of services and

Demand, distinguish between industry demand and firm demand..

distinguish between industry demand and firm demand..

Electron control inc, electron control,inc.,cells voltage regulators to oth...

electron control,inc.,cells voltage regulators to other manufacturers , who then customize and distribute the products to quality assurance labs for their sensitive test equipment.

Gold, Gold Although currently no country uses gold as its national cur...

Gold Although currently no country uses gold as its national currency, gold has a long history of use as commodity money and has almost universal acceptability.  Gold is still

What is production isoquant, Q. What is Production Isoquant? An isoquan...

Q. What is Production Isoquant? An isoquant demonstrates all those combinations of factors that produce the same level of output. An isoquant is also called as equal product cu

State about production theory, State about Production theory Production...

State about Production theory Production theory assists in determining the size of firm and level of production. It clarifies the relationship between marginal and average cost

Proportion of market supplied - determinants of demand, Q. Proportion of Ma...

Q. Proportion of Market Supplied - Determinants of Demand? Price elasticity of market demand moreover relies on the proportion of market supplied at the determined price. If le

Perfectly elastic supply, Perfectly Elastic Supply Supply is said to b...

Perfectly Elastic Supply Supply is said to be perfectly or infinitely elastic if the price is fixed at all levels of demand.  The demand curve has been shown in the above diag

Definition of oligopoly, Mrs John Robinson- 'Oligopoly is market situation ...

Mrs John Robinson- 'Oligopoly is market situation in between monopoly and perfect competition in which the number of sellers is more than one but is not so large that the market pr

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

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