Question

The demand function for rose is Q= a - 5p and the supply function is Q= e + 2p + 0.1t, where a and e are positive constants and t is the average temperature in a month. Show how the equilibrium quantity and price vary with temperature?

Answer 1

$Qd=Qs$

$a-5p=e+2p+0.1t$

$5p+2p=a-e-0.1t$

$7p=a-e-0.1t$

$P= \frac{a-e-0.1}{7}$

Equilibrium price of roses increases and quantity of roses decreases when temperature falls.