Question 3 Assume that the supply and demand curves in a market are described by

ID: 1168658 • Letter: Q

Question

Question 3

Assume that the supply and demand curves in a market are described by the following equa- tions.

Supply: QS = (0.25) · P + 1.25 Demand: QD = 18.75 (0.25) · P

Answer the following questions.

1-What is the vertical intercept for this supply curve? (Remember, for the supply curve,

we put price (P ) on the vertical axis.)

2-What is the First equilibrium price and quantity (Pe1 and Qe1) in this market?

3-If consumers demand (D) decreases by five (5) units due to a fall in popularity, then what is the new equilibrium price and quantity (Pe2 and Qe2)?

4-What is the vertical intercept of the new demand curve referred to in Question 3.3?

Qs = 0.25P+1.25

Qd= 18.75-0.25P

(1) Vertical intercept is the constant number in the equation whihc is not attached to an variable. Here the supply intercept is 1.25.

(2) Equilibrium is hwere the demand is equal to supply

0.25P+1.25 = 18.75-0.25P

0.5P =17.5

P = $35

Q = 0.25x35 +1.25

Q =10 units

(3) Demand decreases by 5 units means the new demand equation would be 13.75-0.25P

Demand = Supply

13.75-0.25P=0.25P+1.25

12.5 = 0.5P

P = 25

Q =0.25x25+1.25 =7.5

The new price and demand is $25 and 7.5 units respectively

(4) The vertical intercept of new demand is 18.75-5 = 13.75

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