Consider a two-commodity market. When the unitprices of the products are P1 and P2, the quantities demanded, D 1 and D 2 , and the quantities supplied, S 1 and S 2 , are given by D 1 = 70 − 2 P 1 + P 2 , S 1 = − 14 + 3 P 1 , D 2 = 105 + P 1 − P 2 , S 1 = − 7 + 2 P 2 . a. What is the relationship between the two commodities? Do they compete, as do Volvos and BMWs, ordo they complement one another, as do shirts andties? b. Find the equilibrium prices (i.e., the prices for whichsupply equals demand), for both products.
Consider a two-commodity market. When the unitprices of the products are P1 and P2, the quantities demanded, D 1 and D 2 , and the quantities supplied, S 1 and S 2 , are given by D 1 = 70 − 2 P 1 + P 2 , S 1 = − 14 + 3 P 1 , D 2 = 105 + P 1 − P 2 , S 1 = − 7 + 2 P 2 . a. What is the relationship between the two commodities? Do they compete, as do Volvos and BMWs, ordo they complement one another, as do shirts andties? b. Find the equilibrium prices (i.e., the prices for whichsupply equals demand), for both products.
Solution Summary: The author explains the relation between the two commodities market. Products are competing because the demand and price of commodity are directly proportional to each other.
Consider a two-commodity market. When the unitprices of the products are P1 and P2, the quantities demanded,
D
1
and
D
2
, and the quantities supplied,
S
1
and
S
2
, are given by
D
1
=
70
−
2
P
1
+
P
2
,
S
1
=
−
14
+
3
P
1
,
D
2
=
105
+
P
1
−
P
2
,
S
1
=
−
7
+
2
P
2
.
a. What is the relationship between the two commodities? Do they compete, as do Volvos and BMWs, ordo they complement one another, as do shirts andties? b. Find the equilibrium prices (i.e., the prices for whichsupply equals demand), for both products.
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