Question

5. Suppose the demand and supply functions are given by QD 15-P Qs- P-5, where QD and Qs are the quantities and P is the price. a) Graph the demand curve and supply curve. [Hint: label each axis, the price and quantity b) Calculate the equilibrium price and quantity; add these values to the graph and label them as c) Suppose demand decreases by 1 unit at each price. What is the new demand function? Add the d) Calculate the new equilibrium price and quantity. Label these on your graph. Has the equilib- intercepts for the demand curve, and the price intercept for the supply curve.] [7 P* and Q'. [6] new demand curve to your graph, labelling the new price intercept. [4 rium quantity decreased by 1 unit? Explain. [6

Answer 1

New Demand, theta_D - 1 = 15 - p theta_D = 16 - p New demand: theta_D = 16 - p When p = 0 = > theta = 16 When theta = 0 = > p = 16 d) New equilibrium at 16 - p = p - 5 21 = 2p = > p = 10.5 Put p = 10.5 is theta = p - 5 theta = 5.5 p' = 10.5 and theta' = 5.5 \r\n a) theta_D = 15 - p When p = 0 = > theta = 15 When theta = 0 = > p = 15 theta_s = p - 5 When theta = 0 = > p = 5 b) At equilibrium, Demand - Supply 15 - p = p - 5 20 = 2p = > p = 10 Put p = 10 in theta = p - 5 theta = 10 - 5 = 5 p = 10 and theta = 5