Imagine the market for Good X has a demand function of QDX = 100 - 2PX - 4PY + .05M + 0.1AX, and a supply function of QSX = 4PX - 10, where PX is the price of Good X, PY is the price of Good Y, M is the average consumer income and AX is the amount spent to advertise Good X. If PY is $3, M is $24,000, AX is $500, find the equilibrium price of Good X. P* =
The equilibrium price is the point where the demand and supply of the market are balanced.
Given:
QDX = 100 – 2PX – 4PY + 0.05M + 0.1AX
QSX = 4PX -10
PY = $3
M = $24,000
AX = $500
The equilibrium price is determined by equating the quantity demanded and quantity supplied. Thus,
Now, put the available values in the equation. It will result as:
Hence, the equilibrium price of good X is $224.67.