Average income in the town increases

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Reference no: EM138239

Q. Assume that the equation for demand for bread at a small bakery is Qd = 60 - 10Pb + 3Y, where Qd is the quantity of bread demanded in loaves, price of bread is Pb in dollars($) for every loaf, also average income in the town is Y in thousands of dollars ($). Assume also that the equation for supply of bread is Qs = 30 + 20Pb - 30 Pf, where Qs is the quantity supplied and Pf is the price of flour in dollars per pound. Assume finally that markets clear, so that Qd = Qs.

a. If Y is 10 and Pf is $1, solve mathematically for equilibrium Quantity and equilibrium Pb.

b. If the average income in the town increases to 15, solve for the new equilibrium Quantity and equilibrium Pb.

Reference no: EM138239

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