Question

In: Economics

1. Suppose you have been hired by a research firm trying to understand the market for...

1. Suppose you have been hired by a research firm trying to understand the market for Widgets (a hypothetical product). Your analysis of the data indicates that the Demand curve for Widgets is estimated to be linear and given by equation Qd = 100 – 2P and the Supply curve for Widgets appears to be linear as well and is estimated as Qs = 2P – 20.

  • Graphically draw these two curves, labeling all relevant points (such as intercepts for each line) on the horizontal and vertical axes.
  • Given that Demand is Qd = 100 – 2P and Supply is Qs = 2P – 20, your next assignment is to compute the equilibrium Price and Quantity in the market for Widgets. Indicate these values on the graph.
  • The firm that hired you has estimated that improvements in Widget quality tastes will cause the Demand curve to change to Qd = 140 – 2P.   If the Supply curve remains the same (Qs = 2P – 20), graphically draw these two curves, labeling all relevant points on the horizontal and vertical axes.
  • Given that New Demand is Qd = 140 – 2P and Supply is Qs = 2P – 20, your next assignment is to compute the new equilibrium Price and Quantity in the market for Widgets. Indicate these values on the graph.

Solutions

Expert Solution

Rahul Sunny answered 2 weeks ago
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