Annual demand and supply for the Entronics company is given by:
QD = 5,000 + 0.5 I + 0.2 A - 100P, and QS = -5000 + 100P
where Q is the quantity per year, P is price, I is income per household, and A is advertising expenditure.
a. If A = $10,000 and I = $25,000, what is the demand curve?
b. Given the demand curve in part a., what is equilibrium price and quantity?
c. If consumer incomes increase to $30,000, what will be the impact on equilibrium price and quantity?
a. QD = 19,500 - 100P
b. P = $122.50, Q =7,250
c. The new demand curve is QD = 22,000 - 100P. Thus the new equilibrium price is $135, and the new quantity is 8,500.
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