1 Due to the recession that lowered income the market price

1. Due to the recession that lowered income, the market price of good X got lower. For good X, we assume that Qd(P) = 1000 P + Y 20 , and Qs(P) = 2P Y 20 , where Y is the income, and P is the price of good X. (a) Derive the equilibrium price P in terms of Y .

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Solution

Qd(P) = 1000 P + Y 20 , and Qs(P) = 2P Y 20

Equilibrium is established where Qd = Qs

1000 P + Y 20 = 2P Y 20

1000+40Y = 3P

P = 333.33+13.33Y