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Equilibrium Price and Quantity Demand

Show the equilibrium price and quantity for a given supply and demand curve and graph their relationship.

Annual demand and supply for the Electronic firm is given by:
QD = 5,000 + 0.5 I + 0.2 A - 100P, and
QS = -5000 + 100P
Where, Q is the quantity per year, P is price, I is income per household, and A is advertising expenditure.

a. If A = $10,000 and I = $25,000, what is the demand curve?
b. Given the demand curve in part a., what is equilibrium price and quantity?
c. If consumer incomes increase to $30,000, what will be the impact on equilibrium price and quantity?

Solution Preview

Please view the attached Word document for the required graph.

Qd = 5,000 + 0.5I + 0.2A - 100P
Qs = -5,000 + 100P

a) If A = $10,000 & I = $25,000
Qd = 5,000 + 0.5 (25,000) + 0.2 (10,000) - 100P
= 5,000 + 12,500 + 2,000 - 100P
= 19,500 - 100P

b) Qd = 19,500 - 100P
Qs = -5,000 + 100P
At equilibrium: Qd = Qs

Therefore,
19,500 - 100P = -5,000 +100P
200P = ...

Solution Summary

This posting provides a thorough, step by step analysis illustrating how to solve for this equilibrium price problem. All required work is provided, along with a Word attachment with the required graphing.

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