1. (a) Consider a demand curve of the formQd=20-2P. Also consider a supply curve of the form...

Question

1. (a) Consider a demand curve of the formQd=20-2P. Also consider a supply curve of the form Qs=2P-4. Graph both curves using an appropriate scale for 2

(b) Suppose at each price individuals demand four more units of output, that is, the demand curve shifts to Qd=24-2P. Graph this new curve on the same diagram from part (a) for 2

(d) Solve the problem in part (b) algebraically.
2. Use supply and demand curves to analse the following situations:(a) A new study shows that antioxidants, which help in the prevention of cancer, and a new crop rotation technique is discovered which allows beans to be grown more easily. Analyse what happens in the market for beans.
(b) When war broke out in the Middle East, many markets were affected. Most of the worls's oil production takes place in this region. Analyse (i) what happens in the market for oil; and (ii) what happens in the market for sports utility vehicles as a result of the war.
3. Consider the market for trucks. Assume that the demand for trucks is given by Qd=60-2P+5Y where P is price per truck and Y is the income of the buyers. The supply of trucks is given by Qs=30+5P-3W where W is the price of all materials needed to produce a truck. Solve for the equilibrium price P* and equilibrium quantity Q* of trucks bought and sold.

Robert · Accepted Answer

Ans 1. 
a. Qd=20-2P    ,    Qs=2P-4 
Qd 16 8 0 
P 2 6 10
Qs 0 8 16 
P 2 6 10
Now, plotting the coordinates from the above tables on the graph
Now, plotting the two graphs on the same plane
The intersection of the demand curve and the 
supply curve gives the equilibrium point. 
Here point B is the equilibrium point. The 
equilibrium price is 6 and equilibrium 
quantity is 8.
b. New demand equation  Qd=24-2P   
At every price the consumer demands 4 extra units of the good, so the demand curve 
shifts to the right. Hence a new equilibrium is attained at point B2. The new equilibrium 
price is 7 and the new equilibrium quantity is 10. There is an upward movement along the 
supply curve from point B1 to B2.
 

c. Algebraically solving for equilibrium 
Demand equation Qd=20-2P    ,    supply equation Qs=2P-4 
In equilibrium quantity demanded has to equal quantity supplied 
Qd=Qs 
 20-2P=2P-4 
 4P=24 
 P*=6 
Substituting this value of P in demand equation 
Q=20-2(6) 
 Q*=8
d.  Algebraically solving for equilibrium 
Demand equation Qd=24-2P    ,

1. (a) Consider a demand curve of the formQd=20-2P. Also consider a supply curve of the form Qs=2P-4. Graph both curves using an appropriate scale for 2 (b) Suppose at each price individuals demand...

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