Assume That the Equation for Demand for Bread at a Small

Essay

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