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_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 $P _ { \mathrm { f } }$ is $\$ 1$ , solve mathematically for equilibrium $Q$ and $P _ { \mathrm { b } }$ .
b. If the average income in the town increases to 15 , solve for the new equilibrium $Q$ and $P _ { \mathrm { b } }$ .