Use the following general linear demand relation: where M is income and is the price of a related good,R.If M = $15,000 and = $20 and the supply function is ,then,when the price of the good is $60,

Question

Use the following general linear demand relation:  where M is income and  is the price of a related good,R.If M = $15,000 and  = $20 and the supply function is  ,then,when the price of the good is $60,

Quizplus · Accepted Answer

The demand function can be written as: Qd = 11eab534_69b5_56b3_9198_7b87a6ce2e25_TB2562_11 
Substituting the given values, we get: 
Qd = 11eab534_69b5_a82e_9198_5f9793ecfedf_TB2562_11 
Qd = 7,500 - 125P 
The supply function can be written as: Qs = 11eab534_69b5_56b2_9198_950d9c2aa16b_TB2562_11 
Substituting the given values, we get: 
Qs = 11eab534_69b5_a82f_9198_b2d8eda362b2_TB2562_11 
Qs = 1,500 + 250P 
At equilibrium, Qd = Qs 
7,500 - 125P = 1,500 + 250P 
375P = 6,000 
P = 16 
When the price is $60 (which is higher than the equilibrium price), Qd = 7,500 - 125(60) = 750 
And Qs = 1,500 + 250(60) = 16,500 
Therefore, there is a surplus of 16,500 - 750 = 15,750 units of the good.

Use the Following General Linear Demand Relation: Where M