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10 points. 2. Suppose that for pizza: the demand equation is: P = 200 - 400...

Question

10 points. 2. Suppose that for pizza: the demand equation is: P = 200 - 400...

10 points. 2. Suppose that for pizza: the demand equation is: P = 200 - 400 the supply equation is: Qs = p - 25 a) What is th
10 points. 2. Suppose that for pizza: the demand equation is: P = 200 - 400 the supply equation is: Qs = p - 25 a) What is the equilibrium price and quantity in the market for pizzar b) Use a diagram to illustrate how each of the following events affects the equilibrium price and quantity of pizza: (Note: Draw a new diagram for each case do not illustrate all events on one single diagram. With each diagram, start by illustrating the equilibrium conditions from part a. before proceeding to illustrate the effect of the event. Be sure to label all graphs/diagrams - including the directional i. The price of tomato sauce, an ingredient of pizza, rises. ii. Consumer income increases, assuming pizza is an inferior good.

Answers

Solution

(a) P = 200 - Qd ; Qs = (1/6) P - 25

At Equilibrium price, the supply and demand are equal

Qs = Qd => 200 - P =(1/6)P - 25 => P = 262.50

Equilibrium Quantity Qe = (1/6) P -25 i.e., Q e = 18.75

(b) (i) When the price of tomatoes (which is a raw material for pizza) increases,the supply decreases i.e., the supply curve shifts leftwards to S1 S1'  from S S1'

(ii) when the income increases,since pizza is a inferior good,it's demand decreases i.e., the demand curve shifts leftwards to D1D1'  from D D1'

2907 20 30 40 o p 90 80 when price of tomato sauce increases p 350 L R3007wek 10 20 30 40 50 60 totox 304 QUANTITÝ

When Income rises asoow n en er 8 8 8 h B & Do zo 30 40 50 60 70 80 QUANTITYHope this solution helps !! Please give a " Thumbs Up " rating for this solution !! Comment in case of queries,I will try to address them !!


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