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In: Economics

When the price is $30 per unit, buyers in a market are willing to buy 400...

When the price is $30 per unit, buyers in a market are willing to buy 400 gadgets and when the price is $60 per unit, they are only willing to buy 100 gadgets. When the price is $30 per unit, sellers in a market are only willing to sell 150 gadgets and when the price is $60 per unit, they are willing to sell 225 gadgets. Assume (1) the economic environment of buyers (their income, tastes or preferences, other prices, and expectations) and sellers (technology, input prices, etc.) are constant and (2) the demand and supply curves are linear all along. What is the inverse supply equation in this market?

Solutions

Expert Solution

When the price is P = 30 quantity supplied is Qs = 150

When the price is P = 60 quantity supplied is Qs = 225

we can find a linear supply curve by using the concept of straight line

Two point form of equation of a line is given as

(y - y1) = (y2 - y1)/(x2 - x1)[x - x1]

similarly

(P - P1) = (P2 - P1)/(Q2 - Q1)[Q - Q1]

P1 = 30 Q1  = 150

P2 = 60 Q2 = 225

(P - 30) = (60 - 30)/(225 - 150)[Q - 150]

P - 30 = (30/75)[Q - 150]

P - 30 = (2/5)[Q - 150]

P - 30 = (0.4)[Q - 150]

P - 30 = 0.4Q - 60

P = 0.4Q - 60 + 30

P = 0.4Q - 30

Inverse supply equation is

P = 0.4Q - 30  

Rahul Sunny answered 2 years ago
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