In some markets, demand can be approximated by Q = 50 ? 5P + 10Y where Q is quantity, P price per unit, and Y = buyers' income. Supply can be approximated by Q = ?5 + 10P
a. If Y = 20, what is equilibrium price and output?
b. If Y rises to 25, what is the new equilibrium price and output?
a. Equate the supply and demand equations, substituting 20 for Y:
50 ? 5P + 10(20) = ?5 + 10P
50 + 200 + 5 = 15P
P = 17, Q = 165
b. Equate the supply and demand equations, substituting 25 for Y:
50 ? 5P + 10(25) = ?5 + 10P
50 + 250 + 5 = 15P
P = 20.33, Q = 198.33
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