Calculating equilibrium price and quantity level
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The market demand and supply functions of copper are as follows:
QD = 10 -50PC + 0.3I + 1.5TC + 0.5E where:
QD = quantity demanded of copper (millions of pounds)
PC = price of copper ($ per pound)
I = consumer income index
TC = telecom index
E = expectation index
QS= -86 + 90PC â?" 1.5W + 0.5T + 0.4N where:
QS = quantity supplied of copper (millions of pounds)
PC = price of copper ($ per pound)
W = an index of wage rates in the copper industry
T = technology index
N = number of active mines in the copper industry.
(A) Given the following values for the non-price variables, find the market equilibrium price (PE) and quantity (QE):
I = 100, TC=10, E=30, W=10, T=30, N=40
(B) Discuss the impacts on the market equilibrium price (PE) and quantity (QE) of a 10 percent increase in consumer income index.
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Solution Summary
Solution describes the steps to calculate equilibrium price and quantity level. It also analyzes the impact of a rise in income level on equilibrium parameters.
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(A) Given the following values for the non-price variables, find the market equilibrium price (PE) and quantity (QE):
I = 100, TC=10, E=30, W=10, T=30, N=40
QD = 10 - 50PC + 0.3I + 1.5TC + 0.5E
Put various values of given parameters
QD=10-50PC+0.3*100+1.5*10+0.5*30=70-50PC
QS= -86 + 90PC- 1.5W + ...
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- BEng (Hons) , Birla Institute of Technology and Science, India
- MSc (Hons) , Birla Institute of Technology and Science, India
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