# ps2x101_s03_answer - Econ 101 Spring 2003 Wissink PS2-XtraQ...

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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=500-2P Equation B: X=-25+P Econ 101 - Spring 2003 - Wissink PS2-XtraQ 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. ... 500-2P*=-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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## This note was uploaded on 03/27/2009 for the course ECON 1110 taught by Professor Wissink during the Fall '06 term at Cornell.

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ps2x101_s03_answer - Econ 101 Spring 2003 Wissink PS2-XtraQ...

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