Question

Suppose demand for good I is given by 01 100-20P1+5P2+21, where P1 is the price of good 1, P2 is the price of some other good 2, and I is income. Supply is given by Q1°=100+5P1. Initially P2=2 and I-50. Calculate equilibrium price and quantity for good 1 (10 PTS). Calculate and explain what would happen if the price were regulated and set at P1=5.0?

Answer 1

The equilibrium price for good 1 is -0.44.

Step-by-step explanation:

To find the equilibrium price and quantity for good 1, we can set the demand and supply equations equal to each other:

100-20P1+5P2+21 = 100+5P1

Simplifying the equation, we get:

25P1+5P2 = -1

Since P2 = 2 and I = 50, we can substitute the values into the equation:

25P1+5(2) = -1

Simplifying further, we get:

25P1+10 = -1

Subtracting 10 from both sides, we get:

25P1 = -11

Dividing by 25, we get:

P1 = -0.44

Therefore, the equilibrium price for good 1 is -0.44.