Reference no: EM131149534
Solve the following exercises (explaining every step):
Q.1. Suppose the market demand for a particular product in Dubai is given by the following equation:
Qd = 1000 - 20P + 10Ps - 10Pc + 6Y
While the market supply of this product is given by the following equation:
Qs = 40P - 180 - 40C
Where: Qd =quantity demanded; Qs = quantity supplied; P = the price of the good; Ps = the price of a substitute; Pc = the price of a compliment; Y = the consumer's income; C = the marginal cost of producing the good.
Suppose Ps = 5; Pc = 8; Y = 25; C = 20.
a) Calculate the equilibrium price and quantity of this good. Use graphs
b) Suppose now the price of a substitute rises to 11. Calculate the new equilibrium price and quantity of this good.
c) How does the new equilibrium compare with the old one? Comment on it.
d) How does the increase in the price of the substitute affect the demand?
Q.2. Suppose the demand for using Al Garhoud Bridge in Dubai is represented by the following equation:
Qd = 10,000 - 1000p
Where Qd is the quantity demanded; p is the price in dirhams per use.
a) If the price is 2 AED, how much total revenue is collected?
b) What is the price elasticity of demand when the price is 2 AED?
c) If the Bridge authorities want to increase their total revenue, should they increase or decrease the price from 2 AED? Give reasons
Once again must explain the solution step by step and not only the result, with all the reasons required.
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