The demand curve for product X is given by QD x = 220 − PX + 3PY + 0.001I where PY is the price of a related good Y, and I is income. The supply curve for good X is given by QS X = 10 + 3PX.
a) What is the marginal effect of an increase in PY on the equilibrium price of good X?
b) How much do we need to increase income, if we want people to trade 5 more units of product X?
c) Assuming PY = 2 and I = 50, 000, what is the equilibrium price and quantity for good X?
d) Assuming the same values for PY and I, find the value of PX that would result in a surplus of 100 units. Also find the value of PX that would result in a shortage of 100 units.