Answers to Part B of the First Exam
Fall 2009
NOTE: The answers below correspond to Version A of the exam.
The other versions had slight variations in numerical
values and other aspects of the question.
1.
(20 points)
The demand and supply for coinoperated skyhooks are given by the equations:
P = 80 – 3 Q
(demand)
P = 20 + 3 Q
(supply)
A.
Determine the equilibrium price and quantity in this market. Show your work.
Solve simultaneously the supply and demand functions:
( )
50
10
3
20
10
6
60
3
20
3
80
=
+
=
=
=
+
=
!
P
P
Q
Q
Q
Q
B.
Suppose that an improvement in technology increases supply at all prices by 10 units. What is the effect on equilibrium
price and quantity?
Solve the supply equation for Q:
3
20
3
20
3
20
!
=
=
!
+
=
P
Q
Q
P
Q
P
To obtain the equation for the shifted supply curve, add 10 to this expression:
Q
P
P
Q
P
Q
P
Q
3
10
10
3
30
20
3
10
3
20
+
!
=
+
=
+
!
=
+
!
=
[Notice that this expression is NOT the same as would be obtained by adding 10 to the righthand side of the original
supply function. Shifting the supply function UP by $10 at every quantity is not the same as shifting it to the RIGHT by
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 Fall '11
 Rubin
 Comparative Advantage, Supply And Demand, Haggis, Orkney exports kilts

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