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This question refers to a market in which quantity demanded is given by $q = a - bp$ and quantity supplied by $q = c + dp$.
In this market, an increase in the parameter $a$ would:
a. increase quantity and decrease price.
b. decrease both price and quantity.
c. increase both price and quantity.
d. increase price and decrease quantity.
economics
edited Jul 23 at 8:06
callculus
16.4k31427
asked Jul 23 at 7:17
Joyce
1
 |Â
show 1 more comment
up vote
0
down vote
favorite
This question refers to a market in which quantity demanded is given by $q = a - bp$ and quantity supplied by $q = c + dp$.
In this market, an increase in the parameter $a$ would:
a. increase quantity and decrease price.
b. decrease both price and quantity.
c. increase both price and quantity.
d. increase price and decrease quantity.
economics
edited Jul 23 at 8:06
callculus
16.4k31427
asked Jul 23 at 7:17
Joyce
1
What are your own thoughts? The parameter $a$ appears only in the first equation ... Also, why are both quantity demanded and quantity supplied set to $q$? Is $q=q$?
– Matti P.
Jul 23 at 7:21
No Idea. This is my confusion. I read the text and the notes and now have to complete these hw problems and this is the only one I am having an issue with because of what you mentioned.
– Joyce
Jul 23 at 7:22
Also, we don't have any information about the price here. Since the sign of $a$ in the first equation is positive, we can be pretty sure that the answers B and D are not correct. So the correct answer is either A or C.
– Matti P.
Jul 23 at 7:25
Maybe i will take a guess then. Ughhh!
– Joyce
Jul 23 at 7:30
@Joyce On what price and what quantity does the statements relate? Equilibrium quantity and equlibrium quatity? This should has been mentioned in the statments.
– callculus
Jul 23 at 8:19
 |Â
show 1 more comment
up vote
0
down vote
favorite
up vote
0
down vote
favorite
This question refers to a market in which quantity demanded is given by $q = a - bp$ and quantity supplied by $q = c + dp$.
In this market, an increase in the parameter $a$ would:
a. increase quantity and decrease price.
b. decrease both price and quantity.
c. increase both price and quantity.
d. increase price and decrease quantity.
economics
edited Jul 23 at 8:06
callculus
16.4k31427
asked Jul 23 at 7:17
Joyce
1
This question refers to a market in which quantity demanded is given by $q = a - bp$ and quantity supplied by $q = c + dp$.
In this market, an increase in the parameter $a$ would:
a. increase quantity and decrease price.
b. decrease both price and quantity.
c. increase both price and quantity.
d. increase price and decrease quantity.
economics
edited Jul 23 at 8:06
callculus
16.4k31427
asked Jul 23 at 7:17
Joyce
1
edited Jul 23 at 8:06
callculus
16.4k31427
edited Jul 23 at 8:06
callculus
16.4k31427
edited Jul 23 at 8:06
callculus
16.4k31427
16.4k31427
asked Jul 23 at 7:17
Joyce
1
asked Jul 23 at 7:17
Joyce
1
asked Jul 23 at 7:17
Joyce
1
1
What are your own thoughts? The parameter $a$ appears only in the first equation ... Also, why are both quantity demanded and quantity supplied set to $q$? Is $q=q$?
– Matti P.
Jul 23 at 7:21
No Idea. This is my confusion. I read the text and the notes and now have to complete these hw problems and this is the only one I am having an issue with because of what you mentioned.
– Joyce
Jul 23 at 7:22
Also, we don't have any information about the price here. Since the sign of $a$ in the first equation is positive, we can be pretty sure that the answers B and D are not correct. So the correct answer is either A or C.
– Matti P.
Jul 23 at 7:25
Maybe i will take a guess then. Ughhh!
– Joyce
Jul 23 at 7:30
@Joyce On what price and what quantity does the statements relate? Equilibrium quantity and equlibrium quatity? This should has been mentioned in the statments.
– callculus
Jul 23 at 8:19
 |Â
show 1 more comment
What are your own thoughts? The parameter $a$ appears only in the first equation ... Also, why are both quantity demanded and quantity supplied set to $q$? Is $q=q$?
– Matti P.
Jul 23 at 7:21
No Idea. This is my confusion. I read the text and the notes and now have to complete these hw problems and this is the only one I am having an issue with because of what you mentioned.
– Joyce
Jul 23 at 7:22
Also, we don't have any information about the price here. Since the sign of $a$ in the first equation is positive, we can be pretty sure that the answers B and D are not correct. So the correct answer is either A or C.
– Matti P.
Jul 23 at 7:25
Maybe i will take a guess then. Ughhh!
– Joyce
Jul 23 at 7:30
@Joyce On what price and what quantity does the statements relate? Equilibrium quantity and equlibrium quatity? This should has been mentioned in the statments.
– callculus
Jul 23 at 8:19
What are your own thoughts? The parameter $a$ appears only in the first equation ... Also, why are both quantity demanded and quantity supplied set to $q$? Is $q=q$?
– Matti P.
Jul 23 at 7:21
What are your own thoughts? The parameter $a$ appears only in the first equation ... Also, why are both quantity demanded and quantity supplied set to $q$? Is $q=q$?
– Matti P.
Jul 23 at 7:21
No Idea. This is my confusion. I read the text and the notes and now have to complete these hw problems and this is the only one I am having an issue with because of what you mentioned.
– Joyce
Jul 23 at 7:22
No Idea. This is my confusion. I read the text and the notes and now have to complete these hw problems and this is the only one I am having an issue with because of what you mentioned.
– Joyce
Jul 23 at 7:22
Also, we don't have any information about the price here. Since the sign of $a$ in the first equation is positive, we can be pretty sure that the answers B and D are not correct. So the correct answer is either A or C.
– Matti P.
Jul 23 at 7:25
Also, we don't have any information about the price here. Since the sign of $a$ in the first equation is positive, we can be pretty sure that the answers B and D are not correct. So the correct answer is either A or C.
– Matti P.
Jul 23 at 7:25
Maybe i will take a guess then. Ughhh!
– Joyce
Jul 23 at 7:30
Maybe i will take a guess then. Ughhh!
– Joyce
Jul 23 at 7:30
@Joyce On what price and what quantity does the statements relate? Equilibrium quantity and equlibrium quatity? This should has been mentioned in the statments.
– callculus
Jul 23 at 8:19
@Joyce On what price and what quantity does the statements relate? Equilibrium quantity and equlibrium quatity? This should has been mentioned in the statments.
– callculus
Jul 23 at 8:19
 |Â
show 1 more comment
2 Answers
2
active
oldest
votes
up vote
2
down vote
One of the tenets of economics is that in equilibrium
$$Supply=Demand$$
Both supply and demand are functions of price. So in order to find an equilibrium we need find a price that satisfy the above equation. If supply and demand equations are well-behaved (i.e., supply equation increasing in price and demand equation decreasing in price) then there is a unique equilibrium price such that demand=supply.
So in your case
$$ a-bp = c+dp$$
Solving this equation for $p$ you obtain
$$ p = fraca-cb+d $$
Note that the price needs to be non-negative and finite, which imposes restrictions on the parameters. Assuming that $b,d>0$ so that demand and supply functions are well behaved, we have requirement that $a-c>0$.
We can now answer your question. Differentiating $p$ wrt $a$ we obtain $$fracpartial ppartial a = frac1b+d>0$$
Therefore, equilibrium price increases following an increase in $a$. Moreover, since equilibrium $p$ increases, the supply function implies that the equilibrium quantity will increase as well.
So answer C is correct: Both equilibrium price and equilibrium quantity will increase.
answered Jul 24 at 2:49
Mdoc
464514
add a comment |Â
up vote
1
down vote
If $a$ increases to $a'$, the Demand function $D$ goes to $D'$ and the equilibrium point $E$ goes to $E'$; that is both quantity and price increase.
See the following picture:
answered Jul 26 at 13:35
alexjo
12k1227
add a comment |Â
2 Answers
2
active
oldest
votes
2 Answers
2
active
oldest
votes
active
oldest
votes
active
oldest
votes
up vote
2
down vote
One of the tenets of economics is that in equilibrium
$$Supply=Demand$$
Both supply and demand are functions of price. So in order to find an equilibrium we need find a price that satisfy the above equation. If supply and demand equations are well-behaved (i.e., supply equation increasing in price and demand equation decreasing in price) then there is a unique equilibrium price such that demand=supply.
So in your case
$$ a-bp = c+dp$$
Solving this equation for $p$ you obtain
$$ p = fraca-cb+d $$
Note that the price needs to be non-negative and finite, which imposes restrictions on the parameters. Assuming that $b,d>0$ so that demand and supply functions are well behaved, we have requirement that $a-c>0$.
We can now answer your question. Differentiating $p$ wrt $a$ we obtain $$fracpartial ppartial a = frac1b+d>0$$
Therefore, equilibrium price increases following an increase in $a$. Moreover, since equilibrium $p$ increases, the supply function implies that the equilibrium quantity will increase as well.
So answer C is correct: Both equilibrium price and equilibrium quantity will increase.
answered Jul 24 at 2:49
Mdoc
464514
add a comment |Â
up vote
2
down vote
One of the tenets of economics is that in equilibrium
$$Supply=Demand$$
Both supply and demand are functions of price. So in order to find an equilibrium we need find a price that satisfy the above equation. If supply and demand equations are well-behaved (i.e., supply equation increasing in price and demand equation decreasing in price) then there is a unique equilibrium price such that demand=supply.
So in your case
$$ a-bp = c+dp$$
Solving this equation for $p$ you obtain
$$ p = fraca-cb+d $$
Note that the price needs to be non-negative and finite, which imposes restrictions on the parameters. Assuming that $b,d>0$ so that demand and supply functions are well behaved, we have requirement that $a-c>0$.
We can now answer your question. Differentiating $p$ wrt $a$ we obtain $$fracpartial ppartial a = frac1b+d>0$$
Therefore, equilibrium price increases following an increase in $a$. Moreover, since equilibrium $p$ increases, the supply function implies that the equilibrium quantity will increase as well.
So answer C is correct: Both equilibrium price and equilibrium quantity will increase.
answered Jul 24 at 2:49
Mdoc
464514
add a comment |Â
up vote
2
down vote
up vote
2
down vote
One of the tenets of economics is that in equilibrium
$$Supply=Demand$$
Both supply and demand are functions of price. So in order to find an equilibrium we need find a price that satisfy the above equation. If supply and demand equations are well-behaved (i.e., supply equation increasing in price and demand equation decreasing in price) then there is a unique equilibrium price such that demand=supply.
So in your case
$$ a-bp = c+dp$$
Solving this equation for $p$ you obtain
$$ p = fraca-cb+d $$
Note that the price needs to be non-negative and finite, which imposes restrictions on the parameters. Assuming that $b,d>0$ so that demand and supply functions are well behaved, we have requirement that $a-c>0$.
We can now answer your question. Differentiating $p$ wrt $a$ we obtain $$fracpartial ppartial a = frac1b+d>0$$
Therefore, equilibrium price increases following an increase in $a$. Moreover, since equilibrium $p$ increases, the supply function implies that the equilibrium quantity will increase as well.
So answer C is correct: Both equilibrium price and equilibrium quantity will increase.
answered Jul 24 at 2:49
Mdoc
464514
One of the tenets of economics is that in equilibrium
$$Supply=Demand$$
Both supply and demand are functions of price. So in order to find an equilibrium we need find a price that satisfy the above equation. If supply and demand equations are well-behaved (i.e., supply equation increasing in price and demand equation decreasing in price) then there is a unique equilibrium price such that demand=supply.
So in your case
$$ a-bp = c+dp$$
Solving this equation for $p$ you obtain
$$ p = fraca-cb+d $$
Note that the price needs to be non-negative and finite, which imposes restrictions on the parameters. Assuming that $b,d>0$ so that demand and supply functions are well behaved, we have requirement that $a-c>0$.
We can now answer your question. Differentiating $p$ wrt $a$ we obtain $$fracpartial ppartial a = frac1b+d>0$$
Therefore, equilibrium price increases following an increase in $a$. Moreover, since equilibrium $p$ increases, the supply function implies that the equilibrium quantity will increase as well.
So answer C is correct: Both equilibrium price and equilibrium quantity will increase.
answered Jul 24 at 2:49
Mdoc
464514
edited Jul 24 at 3:11
answered Jul 24 at 2:49
Mdoc
464514
answered Jul 24 at 2:49
Mdoc
464514
answered Jul 24 at 2:49
Mdoc
464514
464514
add a comment |Â
add a comment |Â
up vote
1
down vote
If $a$ increases to $a'$, the Demand function $D$ goes to $D'$ and the equilibrium point $E$ goes to $E'$; that is both quantity and price increase.
See the following picture:
answered Jul 26 at 13:35
alexjo
12k1227
add a comment |Â
up vote
1
down vote
If $a$ increases to $a'$, the Demand function $D$ goes to $D'$ and the equilibrium point $E$ goes to $E'$; that is both quantity and price increase.
See the following picture:
answered Jul 26 at 13:35
alexjo
12k1227
add a comment |Â
up vote
1
down vote
up vote
1
down vote
If $a$ increases to $a'$, the Demand function $D$ goes to $D'$ and the equilibrium point $E$ goes to $E'$; that is both quantity and price increase.
See the following picture:
answered Jul 26 at 13:35
alexjo
12k1227
If $a$ increases to $a'$, the Demand function $D$ goes to $D'$ and the equilibrium point $E$ goes to $E'$; that is both quantity and price increase.
See the following picture:
answered Jul 26 at 13:35
alexjo
12k1227
answered Jul 26 at 13:35
alexjo
12k1227
answered Jul 26 at 13:35
alexjo
12k1227
answered Jul 26 at 13:35
alexjo
12k1227
12k1227
add a comment |Â
add a comment |Â
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What are your own thoughts? The parameter $a$ appears only in the first equation ... Also, why are both quantity demanded and quantity supplied set to $q$? Is $q=q$?
– Matti P.
Jul 23 at 7:21
No Idea. This is my confusion. I read the text and the notes and now have to complete these hw problems and this is the only one I am having an issue with because of what you mentioned.
– Joyce
Jul 23 at 7:22
Also, we don't have any information about the price here. Since the sign of $a$ in the first equation is positive, we can be pretty sure that the answers B and D are not correct. So the correct answer is either A or C.
– Matti P.
Jul 23 at 7:25
Maybe i will take a guess then. Ughhh!
– Joyce
Jul 23 at 7:30
@Joyce On what price and what quantity does the statements relate? Equilibrium quantity and equlibrium quatity? This should has been mentioned in the statments.
– callculus
Jul 23 at 8:19