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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
=404P while the supply curve is
given by Q
S
=2P2.
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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View Full Documentsupply 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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 Fall '07
 Hansen
 Economics, Microeconomics

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