Question

Questions 5-15 The demand and supply schedules for chewing gum are as follows: Supply: Q = 3P - 30 Demand: Q = -2P+220 Where P is the price of gum, and Q is the quantity, in millions of packs. 5. What is the equilibrium price of gum? (Please enter a whole number, with no decimal point). 6. How many packs of gum will be bought and sold in equilibrium? (Answer in millions, so if the answer is 9,000,000 packs, write "9".) _(Please enter a whole number, with no decimal point). 7. Suppose that a huge fire destroys one-third of the gum factories. The supply of gum decreases to two-thirds of the amount shown in the above supply curve (ie, at every price, 2/3 as much is supplied as was before the fire) What is the new equilibrium quantity of gum? (in millions). (Please enter a whole number, with no decimal point). 8. What is the new (post-fire) equilibrium price of gum? (Please enter a whole number, with no decimal point). 9. Has there been a shift in or a movement along the supply curve? A Shift B. Movement along 10. Has there been a shift in or a movement along the demand curve? A. Shift B. Movement along

Answer 1

5. At equilibrium, supply = demand.
So, 3P - 30 = -2P + 220
So, 3P + 2P = 220 + 30
So, 5P = 250
So, P = 250/5
So, P = 50

6. Q = 3P - 30 = 3*(50) - 30 = 150 - 30 = 120
So, Q = 120 million

7. New supply, Q' = (2/3)*Q = 2/3*(3P - 30) = 2P - 20
At equilibrium, new supply = demand.
So, 2P - 20 = -2P + 220
So, 2P + 2P = 220 + 20
So, 4P = 240
So, P = 240/4
So, P = 60
Q = 2P - 20 = 2*(60) - 20 = 120 - 20 = 100

Thus, Q = 100 million

8. P = 60

9. A. Shift
(As the supply has decreased, so there is a leftward shift of the supply curve.)

10. B. Movement along
(A shift in supply causes a movement along the demand curve.)

(Note: Post 4 subparts at a time.)