Equilibrium in a two commodity market, Managerial Economics

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

Posted Date: 11/27/2012 7:08:42 AM | Location : United States







Related Discussions:- Equilibrium in a two commodity market, Assignment Help, Ask Question on Equilibrium in a two commodity market, Get Answer, Expert's Help, Equilibrium in a two commodity market Discussions

Write discussion on Equilibrium in a two commodity market
Your posts are moderated
Related Questions
Problem: (a) (i) Assuming that a household uses a subjective discount rate of 10%, calculate the amount that she must spend on consumption per annum during her years of existe


Explain about Pragmatic Managerial economics is pragmatic. In pure micro-economic theory, analysis is performed based on certain exceptions that are far from reality. Though in

Limitations of Uneven Distribution of Income and Wealth Unlike the historical experience of the now developed countries, the rich in contemporary Third World Countries are not


Gross Domestic Product A measure of national economic activity, GDP is measured from two approaches. GDP can be viewed as the total value of all goods and services produced in

In regards to air pollution, use a diagram to show and explain how the existence of pollution can make the market equilibrium inefficient.

Measuring Point Elasticity on a Linear Demand Curve To explain the measurement of point elasticity of a linear demand curve, let's suppose that a linear demand curve is given b

Average Total Costs (ATC) This is total cost per unit of output, obtained by dividing total cost by total output i.e. ATC   =   Total Cost              Total Outp

Marginal Revenue Marginal revenue is the additional revenue an organization receives resulting from the sale of one more item of output. Marginal revenue is calculated by takin