Assume that demand for a commodity is represented by the equation P = 10 – 0.2 Q d, and supply by the equation P = 2 + 0.2

Assume that demand for a commodity is represented by the equation P = 10 – 0.2 Q d, and supply by the equation P = 2 + 0.2 Qs where Qd and Q s are quantity demanded and quantity supplied, respectively, and P is the Price. Use the equilibrium condition Qs = Qd ,

1: Solve the equations to determine equilibrium price.

2: Now determine equilibrium quantity.

3: Graph the two equations to substantiate your answers and label these two graphs as D1 and S1.

4: Furthermore; assume the demand for this product increases because of a change in income.

A. graph the new demand curve and label as D 2.

B. What will be the new equilibrium price and quantity compare to the initial one.

The demand shifts to the right And both price and quantity will increase.

C. Is this product normal good or inferior good?

It is a normal good with positive income effect.