The Equilibrium Price and Quantity of Widgets - Assignment Example

We can say that the equilibrium price is obtained where the quantity demanded is equivalent to the quantity supplied.
In the equation Qd = 15 - 3P + 2I, where I=30
By substituting the I value in the equation we have,
Qd = 15 - 3P + 2×30
= 15 - 3P + 60 (by multiplying the value 2and 30)
= 75-3P (by adding 15 and 60)
We have, Qd=75-3P
We can use the A figure and obtain the P value
Qs = 23 + 10P and Qd=75-3P
Therefore,
Qs= Qd
23 + 10P = 75-3P
10P + 3P = 75-23
13P = 52
P = 4
The equilibrium price and quantity of widgets in the market when Average income equals $30 thousand is 4
Qd= 75-3P =75-12= 63
Case 2: Average income equals $23.5 thousand (I = 23.5)
Given: the economy suffered a severe recession and average income fell to $23.5 thousand
By substituting I value in the equation Qd = 15 - 3P + 2I we have,
Qd = 15 - 3P + 2×23.5 (by multiplying the value 2and 23.5)

= 15 - 3P + 47 (by adding 15 and 60)
= 62-3P
We can use the A figure and obtain the P value
Qs = 23 + 10P and Qd=62-3P
Therefore,
Qs= Qd
23 + 10P = 62-3P
10P + 3P = 62-23
13P = 39
P = 3
Qs = 23 + 10P= 23 + 30= 53
The new equilibrium price and quantity of widgets in the market when average income equals $23.5 thousand is 3.

This shows that the price of the equilibrium price and quantity of widgets in the market decreases when the average income decreases and this can be seen in the above graph.
So we can conclude that the competitive markets for different types of labor are determined by supply and demand.
This can be related to the principles that we learned as, the increase in income increases the demand for a particular good (Besanko, p. 36)
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