# ps4an - UNIVERSITY OF WISCONSIN Economics 101 Fall 2005 Wei...

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UNIVERSITY OF WISCONSIN Economics 101 – Fall 2005 Wei Zhang Problem Set 4 – Answer Key 1. Recall that annual demand for widgets is given by the equation Q D =40-4P while the supply curve is given by Q S =2P-2. a) Quantity demanded will be 0 when Price = \$10. To show this, substitute 0 for Q D in the demand equation and solve for P: 0 = 40 – 4P 4P = 40 …… P=\$10. Using the same technique, we find that quantity supplied will be 0 when Price = \$1. b) c) To find equilibrium price and quantity, we must find a P * and Q * that satisfy both the demand and

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supply equations simultaneously. Computationally, this means we need to solve the system of 2 simultaneous equations. We know in equilibrium that Q S = Q D . Thus, 40 – 4P = 2P – 2 42 = 6P P * = \$7. Then substitute P = 7 into either the supply or demand equation to find that: Q * = 2(7) – 4 = 12 2. Changes in Equilibrium due to Shifts in Supply and Demand. To examine the market for Pentium IV computers, draw a downward sloping demand curve and an upward sloping supply curve. Show the
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## This note was uploaded on 07/28/2010 for the course ECON 101 taught by Professor Hansen during the Fall '07 term at University of Wisconsin.

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ps4an - UNIVERSITY OF WISCONSIN Economics 101 Fall 2005 Wei...

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