1.

1. Demand and supply functions: 10=5d→d=2

Qd=a−bP Plugging d back:
Qs=c+dP 11=c+14
For demand: c=−3
Qd=a−bP Supply function:
Have: Qs=−3+2P
20=a−7b 2. Equilibrium price and quantity:
15=a−12b Set Qd=Qs:
Subtract the equations: 27−P=−3+2P
5=5b→b=1 27+3=3P
Plugging b back: 30=3P→P=10
20=a−7 Equilibrium price: 10 nghìn/kg
a=27 Equilibrium quantity: Q=27−10=17 kg
Demand function: 3. Market quantities:
Qd=27−P At P1=8.5:
For supply: Demand: Qd=27−8.5=18.5 kg
Qs=c+dP Supply: Qs=−3+2(8.5)=14 kg
Using two points, (7, 11) and (12, 21): At P2=11.5:
11=c+7d Demand: Qd=27−11.5=15.5 kg
21=c+12d Supply: Qs=−3+2(11.5)=20 kg
Subtract the equations:

2.
a) Price and Quantity in Free Market: P = 18 - 2Q
We have the equations: Set them equal to find equilibrium:
P = 3Q - 12 3Q - 12 = 18 - 2Q
Combine like terms: 10 - 2Q = 3Q - 12
5Q = 30 Combine like terms:
Q=6 10 + 12 = 5Q
Plug Q back into one of the equations: 22 = 5Q
P = 3(6) - 12 Q = 22/5
P=6 Q = 4.4
So, the equilibrium price is 6 unit, and the equili Plug Q back into one of the equations:
brium quantity is 6 kg.
P = 10 - 2(4.4)
b) New Equilibrium Point:
P = 1.2
New demand equation:
So, the new equilibrium price is 1.2 unit, and th
P = 10 - 2Q e equilibrium quantity is 4.4 kg.
P = 3Q – 12 c) Graphing:
Set them equal:
1. True or False. Explain.
"A and B are substitutes. The increasing price of A leads the price of B decreased."
False.
If A and B are substitutes, an increase in the price of A typically leads to an increase in the
demand for B, not a decrease. Here's why:
- Substitutes is an increase in the price of one leads to an increase in the demand for the other.
For example, if the price of A (e.g., coffee) increases, consumers may choose to switch to B (e.g.,
tea) since B is a substitute.
- As the demand for B increases due to consumers shifting from A to B, this increased demand
can put upward pressure on the price of B, causing it to rise, not decrease.
Therefore, the statement is false because increasing the price of a substitute (A) generally leads
to higher demand (and potentially a higher price) for B.
2. Beer and pizza are complements because they are often enjoyed together. When the price
of beer rises, what happens to the supply, demand, quantity supplied, quantity demanded,
and price in the market for pizza?
Supply is unchanged, demand is decreased, quantity supplied and quantity demanded
declines, and the price falls.
When the price of a complement good increases, the other good will experience a leftward shift
in demand. This is because the two goods are consumed together and thus the price of the bundle
increases. There will be no change in supply. Since demand shifted left, the new equilibrium
price and quantity fall. This means price falls and quantity demanded and supplied falls.
Consumers would be willing to buy less of it due to the higher price. And since pizza goes along
with it because you cannot have just a beer without the pizza, consumers will now have to pay
more for the combo of beer and pizza. So with consumers having to pay more for the beer,
leading to a decrease in its demand, pizza would also suffer a decrease in demand.
3. Consider the market for minivans. For each of the events listed here, identify which of
the determinants of demand or supply are affected. Also indicate whether demand or
supply increases or decreases. Then draw a diagram to show the effect on the price and
quantity of minivans.
a. People decide to have more children.
b. A strike by steelworkers raises steel prices.
c. Engineers develop new automated machinery for the production of minivans.
d. The price of sports utility vehicles rises.
e. A stock market crash lowers people's wealth.
a) People decide to have more children. - Demand, Increase (shift right)
To determine
Demand and supply, its determinants and its effect on price and quantity.
Explanation of Solution
Figure 1 illustrates the change in equilibrium due to shift in the demand curve.

If people decide to have more children, then they would require larger vehicles for transporting
their kids around. This results in an increase in the demand for minivan, while the supply curve
remains unaffected. The result is a rise in both the price and the quantity sold. Figure 1 illustrates
shift in the demand curve of minivans due to the increased children. The vertical axis represents
the price of minivans and the horizontal axis represents the quantity demanded and supplied of
minivans. The rightward shift of demand curve causes an increase in both the equilibrium
quantity and price of minivans.
Economics Concept Introduction
Concept Introduction:
Quantity demanded: It is the amount of a good that buyers are willing and able to purchase in the
market.
Demand curve: It shows how the quantity of a good demanded depends on the price.
Supply curve: It shows how the quantity of a good supplied depends on the price.
Quantity supplied: It is the amount of a good that sellers are willing and able to sell in the
market.
Substitutes: Two goods are considered substitutes if an increase in the price of one good lead to
an increase in the demand for the other.
Equilibrium price: It is the price at which the quantity demanded of a good or service is equal to
the quantity supplied.

b) A strike by steelworkers raises steel prices. - Supply, decrease (shift left).

To determine
Demand and supply, its determinants and its effect on price and quantity.
Explanation of Solution
Figure 2 illustrates the change in equilibrium due to shift in the supply curve.

Figure 2 illustrates the change in demand and supply of minivans when the price of steel rises.
The vertical axis represents the price of minivans and the horizontal axis represents the quantity
demanded and supplied of minivans. From Figure 2, it can be inferred that when the price of
steel rises as a result of strike by steelworkers, the supply curve of minivans shifts leftwards
because an increase in steel price is an increase in cost of producing a minivan. But there will be
no shift in demand curve. The leftward shift of supply curve causes a decline in the equilibrium
quantity sold with a rise in the equilibrium price of minivans.
Economics Concept Introduction
Concept Introduction:
Quantity demanded: It is the amount of a good that buyers are willing and able to purchase in the
market.
Demand curve: It shows how the quantity of a good demanded depends on the price.
Supply curve: It shows how the quantity of a good supplied depends on the price.
Quantity supplied: It is the amount of a good that sellers are willing and able to sell in the
market.
Substitutes: Two goods are considered substitutes if an increase in the price of one good lead to
an increase in the demand for the other.
Equilibrium price: It is the price at which the quantity demanded of a good or service is equal to
the quantity supplied.

c) Engineers develop new automated machinery for the production of minivans. - Supply,
increase (shift right).
To determine
Demand and supply, its determinants and its effect on price and quantity.
Explanation of Solution
Figure 3 illustrates the change in equilibrium due to shift in the supply curve.
The development of new automated machinery for the
production of minivans increases the supply of minivans
with a reduction in its cost of production due to improved
technology. This is illustrated in Figure 3, where the
horizontal axis represents the quantity demanded and
supplied of minivans, while the vertical axis represents
the price. This reduction in firms' costs will result in an
increase in supply causing it to shift to the right; but the
demand remains unaffected. The eventual result is a
decline in the equilibrium price of minivans and an
increase in the quantity sold.
Economics Concept Introduction
Concept Introduction:
Quantity demanded: It is the amount of a good that buyers are willing and able to purchase in the
market.
Demand curve: It shows how the quantity of a good demanded depends on the price.
Supply curve: It shows how the quantity of a good supplied depends on the price.
Quantity supplied: It is the amount of a good that sellers are willing and able to sell in the
market.
Substitutes: Two goods are considered substitutes if an increase in the price of one good lead to
an increase in the demand for the other.
Equilibrium price: It is the price at which the quantity demanded of a good or service is equal to
the quantity supplied.
d) The price of sports utility vehicles rises. - Demand, Increase (shift right). - If sports utility
vehicles are substitutes for minivans
To determine
Demand and supply, its determinants and its effect on price and quantity.
Explanation of Solution
Figure 4 illustrates the change in equilibrium due to shift in the supply curve.

The rise in the price of sport utility vehicles affects the demand of minivans because sport utility
vehicles are the substitutes for minivans. This is illustrated in Figure 4 where the vertical axis
represents the price of minivans and the horizontal axis represents the quantity demanded and
supplied of minivans. From Figure 4, it can be inferred that when the price of sport utility
vehicles rise, the demand for minivans increases, since they are substitutes. This result in shift of
demand curve rightwards because the higher price of sport utility vehicles will lead consumers to
buy more minivans, but there will be no shift in the supply. The rightward shift of demand curve
increases both the equilibrium price and equilibrium quantity of minivans.
Economics Concept Introduction
Concept Introduction:
Quantity demanded: It is the amount of a good that buyers are willing and able to purchase in the
market.
Demand curve: It shows how the quantity of a good demanded depends on the price.
Supply curve: It shows how the quantity of a good supplied depends on the price.
Quantity supplied: It is the amount of a good that sellers are willing and able to sell in the
market.
Substitutes: Two goods are considered substitutes if an increase in the price of one good lead to
an increase in the demand for the other.
Equilibrium price: It is the price at which the quantity demanded of a good or service is equal to
the quantity supplied
e) A stock market crash lowers people’s wealth. - Demand, decrease (shift left).
To determine
Demand and supply, its determinants and its effect on price and quantity.
Explanation of Solution
Figure 5 illustrates the change in equilibrium due to shift in the supply curve.
The stock market crash reduces the wealth of people, which in turn reduces their income. This
reduces the demand of minivans because minivans are likely a normal good. This is illustrated in
Figure 5 where the vertical axis represents the price of minivans and the horizontal axis
represents the quantity demanded and supplied of minivans. From Figure 5, it can be inferred
that when the income falls, the demand for minivans decreases since they are resulting in shift of
demand curve leftwards, but there will be no shift in supply. The leftward shift of demand curve
reduces both the equilibrium price and equilibrium quantity of minivans.
Economics Concept Introduction
Concept Introduction:
Quantity demanded: It is the amount of a good that buyers are willing and able to purchase in the
market.
Demand curve: It shows how the quantity of a good demanded depends on the price.
Supply curve: It shows how the quantity of a good supplied depends on the price.
Quantity supplied: It is the amount of a good that sellers are willing and able to sell in the
market.
Substitutes: Two goods are considered substitutes if an increase in the price of one good lead to
an increase in the demand for the other.
Equilibrium price: It is the price at which the quantity demanded of a good or service is equal to
the quantity supplied.