The water industry in Springfield is competitive, with numerous buyers and selle
ID: 1187968 • Letter: T
Question
The water industry in Springfield is competitive, with numerous buyers and sellers. Consumers don't differentiate among the various brands of water (no product differentiation). The industry demand curve is given by: Qd = 998 – 5Pw + 4 Y – 6Pg And the industry supply curve is given by Qs = +15Pw – 3 Wage Where Pw represents the price of water, Pg is the price of gasoline, Y is disposable personal income in Springfield, and Wage is wages paid to workers in widget factories. Currently, Y= $10, Pg = $3, and Wage = $20.
Suppose Springfield’s economy moves into a recession and Y falls to $9 and rising unemployment allows water makers to reduce wages to $18 per hour. What happens to the equilibrium price and quantity?
Explanation / Answer
Equilibrium price and quantity will fall as decrease in prices of personal income and wages will reduce the production and which will effect the quality and quantity.!!! As Qd = 998 – 5Pw + 4 Y – 6Pg If Y decreases to $9 and wages decreases to $18 then it will decrease demand curve.!!! Plz.. do rate my answer with 5 star ratings..!!!
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