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Answers+to+Part+B+on+first+midterm+Fall+2009

# Answers+to+Part+B+on+first+midterm+Fall+2009 - Answers to...

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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 coin-operated 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 right-hand 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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