Question

Suppose that when good J is free, buyers will demand 100 units of it, but the quantity demanded falls by 5 units for every $2 increase in the price. If the quantity supplied is fixed at 60 units, the equilibrium price will be: Please choose the correct answer from the following choices, and then select the submit answer button. Answer choices $16. $30. $24. $40.

Answer 1

$16

Step-by-step explanation:

At $0, demand is 100units.

but for every $2 increase, there is a 5 unit decrease.

When the demand is fixed at 60 units, let price of good J be x

Firstly, we calculate the difference between 100 units and 60 units

we have, 100 - 60 = 40 units

For every $2, increase, demand is minus 5.

thus we calculate how many 5 units there are in 40 units.

we have 40 units ÷ 5 units = 8

SInce every +$2 causes -5 units, we have the price of good J at 60 units fixed demand to be 8 x $2 = $16.

It means at $16, the demand of good J is 60 units.

Alternatively, you could do this,

At $0, demand is 100 units

At $2 (0 + 2), demand is 95 units (100-5)

At $4 (2+2), demand is 90 units (95-5)

At $6 (4 + 2), demand is 85 units (90-5)

At $8 (6 +2), demand is 80 units (85-5)

At $10 (8 + 2), demand is 75 units (80-5)

At $12 (10 + 2), demand is 70 units (75-5)

At $14 (12 + 2), demand is 65 units (70-5)

At $16 (14+ 2), demand is 60 units (65-5)

Cheers.