Question

Suppose that when good L is free, buyers will demand 1,000 units of the good but that the quantity demanded falls by 40 units for every $3 increase in the price. If the quantity supplied of this good is fixed at 640 units, the equilibrium price in this market will be:
$24.
$30.
$27.
$48.

Answer 1

Answer:

$27

Explanation:

Data provided in the question:

Initial demand = 1,000 units

For every $3 increase in price demand falls by  40 units

or

For every $1 increase in price demand falls by  $\frac{40}{3}$ units

Quantity supplied = 640 units

Now,

Let x be equilibrium price

At equilibrium

Quantity demanded = quantity supplied

Therefore,

1,000 - $\frac{40}{3}x$ = 640

or

$\frac{40}{3}x$ = 1000 - 640

or

$\frac{40}{3}x$ = 360

or

40x = 1080

or

x = $27