Assume That the Equation for Demand for Bread at a Small

question 26

Essay

Assume that the equation for demand for bread at a small bakery is Q^d = 60 - 10P_b + 3Y, where Q^d is the quantity of bread demanded in loaves, P_b is the price of bread in dollars per loaf, and Y is the average income in the town in thousands of dollars. Assume also that the equation for supply of bread is Q^s = 30 + 20P_b - 30 P_f , where Q^s is the quantity supplied and P_f is the price of flour in dollars per pound. Assume finally that markets clear, so that Q^d = Q^s.
a. If Y is 10 and P_f is $1, solve mathematically for equilibrium Q and P_b .
b. If the average income in the town increases to 15, solve for the new equilibrium Q and P_b .

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