The demand and supply functions for sweatshirts (the basic grey kind) are as fol

ID: 1117224 • Letter: T

Question

The demand and supply functions for sweatshirts (the basic grey kind) are as follows:

Price (per period) Price (per period)

$10 15,000 $10 22,000

9 15,500 9 19,000

8 16,000 8 16,000

7 16,500 7 13,000

6 17,000 6 10,000

5 17,500 5 7,000

4 18,000 4 4,000

3 18,500 3 1,000

2 19,000 2 0

The equations for the demand and supply functions above are as follows:

Qd = 20,000 - 500P

Qs = -8,000 + 3000P

a. Solve for the equilibrium price and quantity. (Hint: at equilibrium, quantity supplied equals quantity demanded.)

b. Assume the supply function changes to:

Qs = -5,000 + 3000P

Does supply increase or decrease? What is the new equilibrium price and quantity?

Equilibrium at Qd=Qs, so

20,000 - 500P = -8,000 + 3000P

3500P = 28000

P = 28000/3500 = 8

Q = 20000-500*8 = 16000

If supply function changes to Qs = -5000+3000P

Equilibrium at Qd=Qs

20,000 - 500P = -5,000 + 3000P

25000 = 3500P

P = 25000/3500 = 7.143

Q = -5000+3000*7.143 = 16428.57

The quantity has gone up by 428.57 units

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