Question

Use the following generalized linear demand relation:

Answer 1

Answer:

Explanation:

1 .

Qe = 680 - 9P + 0.006M - 4PR

When the price of good R is increased , the demand of good  is decreased . That means the demand of another  good is increased . It means that goods R is a complement good . Now the coefficient of M is positive that means when income increases , demand of good increases . So the good is a normal good .

Hence good is a normal and complement good of R

option e ) is  correct.

2 .

Qe = 680 - 9P + 0.006M - 4PR

Putting the value of M = 15000 and PR = 20

Qe = 680 - 9P + 0.006x 15000 - 4 x 20

Qe = 680 - 9P + 90  - 80 = 690 - 9P

3 .

For equilibrium

supply = demand

30+3P  =  690 - 9P

12 P = 660

P = 55

Q = 690 - 9P = 690 - 9 x 55 = 195

4 .

When the price of goods is 60 , it is higher than the equilibrium price , hence demand will shrink and it will be less than supply

quantity demanded = 690 - 9P  = 690 - 9 x 60 = 150

quantity supplied = 30+3P = 30 + 3 x 60 = 210

excess supply = 210 - 150 = 60 .

5 .

when price is 40 which is less than equilibrium price

there will be more demand

quantity demanded

= 690 - 9P  = 690 - 9 x 40 = 330

quantity supplied = 30+3P = 30 + 3 x 40 = 150

excess supply = 180