Question

Suppose that the pizza demand function is d(p, y) = 60−10p+2y and the pizza supply function is s(p, pm) = 20p−20pm where p is the price of pizza, y is aggregate income, and pm is the price of materials. if y = 70 and pm = 5, then the equilibrium quantity is:

Answer 1

The equilibrium quantity is the value of p when the demand d and supply s is equal. Therefore we equate the two equations:

60 – 10p + 2y = 20p – 20pm

We are given that:

y = 70

pm = 5

p =?

60 – 10p + 2(70) = 20p – 20(5)

200 – 30p = - 100

- 30p = - 300

p = 10