Suppose silver (S) and gold (G) are substitutes for each other because both serve as hedges...

Suppose silver (S) and gold (G) are substitutes for each other because both serve as hedges against inflation. Suppose also that the supplies of both are fixed in the short run (QS= 250 and QG=150) and that the demands for silver and gold are given by the following equations:
PS=600-QS+0.5PG
PG=1050-QG+0.5PS
What are the equilibrium prices of the silver and gold?
What if a new discovery of gold doubles the quantity supplied to 300. How will this discovery affect the prices of both silver and gold?

Expert Solution

Rahul Sunny answered 2 years ago

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