Suppose the demand curve for a product is given by where I i

Suppose the demand curve for a product is given by: where I is average income measured in thousands of dollars. The supply curve is: If I = 0, find the market-clearing price and quantity for the product. The market-clearing price is and the market-clearing quantity is Enter Q-200 2P +41, Q=3P-150. 140 10 your response as an integer.) 80 100 200 300 Quantity

Solution

Quantity demanded, Q= 200-2P +4I

Quantity supplied , Q= 3P -150

At equilibrium quantity demanded equals quantity supplied.

If I= 0 , then at equilibrium :

200-2P = 3P -150

200+150 = 3P +2P

350 = 5P

P = 70

At this equilibrium price , P=70 then, equilibrium quantity will be:

Q = 3(70) -150

Q= 210-150

Q = 60

Hence, Market clearing price = 70 thousands of dollars and market clearing quantity = 60.