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# demand and supply curves

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(2) Consider the market for commodity X described by the demand and supply equations below
Qd = 5 + 2P
Qs = -10 + 5P.
(a) Briefly comment on the behavior of economic agents in this market.

Since the slope of the demand function is positive (i.e., 2), the quantity demanded will be increase when the price of the product rises. Therefore, commodity X is a Giffen (inferior) good.

(b) Graph the demand and supply curves and find equilibrium price and equilibrium quantity.
Rewrite the demand and supply into:
P = - 2.5 + 0.5Qd
P = 2 + 0.2Qs

P
D
P'
P* S

Q
Q* Q'

At the equilibrium, Qd = Qs
Then 5+2P = -10+5P
15 = 3P
P = 5
Substitute into demand: Q = 5+2*5 = 15

(c) Determine the stability of this market in both the Wakwian and Marshallian sense.

In Marshall, the variable that adjusts is quantity, and the demand and supply price are related to the quantities. It is the quantity that changes to reach equilibrium

However, Walras saw price as the variable ...

#### Solution Summary

The solution graphs the demand and supply curves and find equilibrium price and equilibrium quantity.

\$2.19