Question

1-Given the following two equations: Qd = 150 – 3P Qs = 70 + 2P A- Calculate the equilibrium price and the equilibrium quantity. Show all your work. B- Using the above two equations tofind the values of Qd, Qs, the market situation (Shortage/Surplus/Equilibrium), and the Value of shortage or surplus if any, at the following prices. 10, 15,20 and 25. C- If the consumer income increases by 20%, what will happen to the equilibrium price and quantity 2-Question two If we are at Meat Market, explain what will happen to equilibrium price (Pe) and equilibrium quantity (Qe) in the following cases: 1- Increase the price of meat 2- The price of chickens declined by 50% 3- World health organization (WHO) announced that eating too much meat is unhealthy. 4- Government raised the wages of labors in meat factories 5- Meat factories imported new machines from Japan

Answer 1

1)

a) At equilibrium, Qd = Qs

150 - 3P = 70 + 2P

P = 16

At this price, Q = 102

b) At a price of 10, quantity demanded = 150 - 3 * 10 = 120 while quantity supplied 70 + 2 * 10 = 90 which result in shortage of 120 - 90 = 30

c) If consumer income increase by 20%, consumer will demand more of the good which shift demand curve to its right and result in increase in equilibrium price as well as equilibrium quantity.

2)

a) Increase in price of meat will cause upward movement along the demand curve of meat which raise its price and reduce quantity demanded.

b) Chicken and meats are substitute to each other. Decline in price of chicken will induce consumers to shift to consume more chicken and less meat which reduce demand of meat and shift its demand curve to its left which result in decrease in equilibrium price as well as decrease in equilibrium quantity.

c) As WHO announced that eating meat is not healthy, it will result in decrease in demand of meat and shift its demand curve to its left which result in decrease in equilibrium price as well as decrease in equilibrium quantity.

d) As government raised the wage of labor in meat factories, it raise net cost of producing meat which induce producers to produce less of meat and shift supply curve to its left which result in increase in equilibrium price of meat and decrease in equilibrium quantity.

e) As meat factories imported new machines from Japan, they can produce more meat with using same raw material which will shift supply curve of meat to its right which result in decrease in equilibrium price of meat and increase in equilibrium quantity.