Consider the following two equations that describe market activities in the Cortland NY tire market.
Let X=number of tires per month and P=price per tire
Equation A:
X=5002P
Equation B:
X=25+P
Econ 101  Spring 2003  Wissink
PS2XtraQ
ANSWERS
a)
Which equation would represent the demand curve and why?
Equation A  it has a negative slope so would be consistent with the "law of demand".
b)
Which equation would represent the supply curve and why?
Equation B  it has a positive slope so would be consistent with the "law of supply".
c)
Find the market equilibrium price and number of tires traded, i.e., P* and X*.
Set Xdemand=Xsupply and solve for P*, then get X*.
So.
...
5002P*=25+P* implies 3P*=525, so
that P*=$175 which implies (by plugging back into either the demand or supply equation) that
X*=150.
d)
Graph the equilibrium and label your graph carefully.
(See below.)
e)
Suppose there was a quota placed on this market.
What values for the quota would make the quota
binding?
The quota will be binding so long as Xquota<150.
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 Fall '06
 WISSINK
 Economics, Supply And Demand, Quota

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