: Assume that demand for a commodity is represented by the equation P = 10 – 0.2

Question

: Assume that demand for a commodity is represented by the equation P = 10 – 0.2 Q d, and supply by the equation P = 2 + 0.2 Qs where Qd and Q s are quantity demanded and quantity supplied, respectively, and P is the Price. Use the equilibrium condition Qs = Qd ,


1: Solve the equations to determine equilibrium price.



2: Now determine equilibrium quantity.





3: Graph the two equations to substantiate your answers and label these two graphs as D1 and S1.





4: Furthermore; assume the demand for this product increases because of a change in income.





A: graph the new demand curve and label as D 2.





B: What will be the new equilibrium price and quantity compare to the initial one.





C.Is this product normal good or inferior good?




2: Discuss the characteristics of monopolistic competitive market in detail. Name five different companies that belongs to this market. Compare and contrast monopolistic competitive market with Oligopoly. Illustrate how natural Gas market is related to the above markets and why its price is rising these days.

Explanation / Answer

Both demand and supply are linear.To graph them you need only two points. One is your equilibrium point which demand will cut supply.It is (6,20).If P is on the y-axis, and q is on the x-axis, the demand curve will cut the y-axis at P=10, or when Qd=0. You can draw a line between (10,0) and (6,20), it will be your demand.It's slope is negative and equal to -0.2.The supply curve will cut the Y-axis at P=2. So you can draw the line between (2,0) and (6,20), it will be your supply curve. The slope is positive and equal to 0.2

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