Question 1: Suppose the demand and supply curves for a product are given by
Qd = 500 - 2P
Qs = - 100 + 3P
a. Graph the supply and demand curves.
b. Find the equilibrium price and quantity.
c. If the current price of the product is $100, what is the quantity supplied and the quantity demanded? How would you describe this situation and what would you expect to happen in this market?
d. If the current price of the product is $150, what is the quantity supplied and the quantity demanded? How would you describe this situation and what would you expect to happen in this market?
e. Suppose that demand changes to Qs = 600 - 2P. Find the new equilibrium price and quantity, and show this on your graph.
Question 2: Consider the market for automobiles, and draw representative supply and demand curves.
a. Suppose that the price of gasoline rises, and at the same time, the price of steel (an input to automobile production) falls. Show this on your graph. If you have no other information, what can you say about the change in equilibrium price and quantity?
b. Now suppose that you have the additional information that the rise in gasoline prices has been relatively large, while the reduction in steel costs has been relatively small. How would this change your answer to (a)?