Question

Suppose that there were markets for two related goods. For Good 1, Demand is given by
Q1=198 -3P1 – 3P2 and Supply is given by Q1 = 4P1 -15. For Good 2, Demand is given by
Q2 = 294 – 4P2 – 2P1 and Supply given by Q2 = 4P2 – 20. From the information given,
determine the equilibrium price for Good 1 and Good 2.

Answer 1

Solution:

The equilibrium price for Good 1:

D = S

$198-3P1-3P2=4P1-15$

$198+15-3P2=4P1+3P1$

$213-3P2=7P1$

$\frac{213}{3}-\frac{3P2}{3}=\frac{7P1}{3}$

$71-P2=2.33P1$

$P2=2.33P1-71$

The Equilibrium price for Good 2:

D = S

$294-4P2-2P1=4P2-20$

$294+20-2P1=4P2+4P2$

$314-2P1=8P2$

$\frac{314}{8}-\frac{2P1}{8}=\frac{8P2}{8}$

$39.25-0.25P1=P2$

$P2 = 0.25P1-39.25$