Suppose the quantity demanded for a security is
BD = 100 ? 0.1b,and the quantity supplied of the security is
BS = 50 + 0.1b,where b is the price of the security in dollars.
a.Calculate the equilibrium price and quantity of the security. b.Suppose demand increases by 50, so that BD = 150 ? 0.1b. Now, calculate the new equilibrium price and quantity of the security.
What will be an ideal response?
| a. | Set quantity demanded equal to quantity supplied to get 100 ? 0.1b = 50 + 0.1b, so 50= 0.2b, so b = 250. Plug into either equation to find the equilibrium quantity. The equilibrium quantity is 75. |
| b. | Now, set quantity demanded equal to quantity supplied to get 15 ? 0.1b = 50 + 0.1b, so100 = 0.2b, so b = 500. Plug into either equation to find the equilibrium quantity. The equilibrium quantity is 100. |
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