Use the following information to answer the Question Suppose

Use the following information to answer the Question. Suppose the market demand and market supply for hamburger are given by the following expressions: Qd900- 100P, where Qd represents quantity demanded and P represents price (per pound) Qs 150+50P, where Qs represents quantity supplied and P represents price (per pound) The demand and supply schedules are illustrated on the graph below Price per Unit S9 8 7 6 5 0 100 200 300 400 500 600 700 800 900 Number of Units A. Show how the expressions (the equations above) for demand and supply provided above can be used to solve for the equilibrium price and quantity. In equilibrium, how many pounds would be sold and at what price? SHOW your work or EXPLAIN how you arrived at the answer B. What would happen if the price per pound was $7? (One sentence, include specific quantities demanded and supplied in your response). Suppose the price is allowed to adjust from $7 back to equilibrium-explain the adjustment process in 1-2 sentences C. Suppose the price of chicken, a substitute for hamburger decreases and that, as a result, the demand for hamburger falls by half. (At each price, consumers demand half as much hamburger as before.) Write the expression for the new market demand for hamburger and solve for the new equilibrium price and quantity. SHOW your work.

Solution

A. Equiibrium condition: Qd = Qs

900 - 100P = 150 + 50P

900 - 150 = 50P + 100P

750 = 150P

P* = 750/150 = $ 5

Q* = 900 - 100(5) = 900 - 500 = 400 units

B. At price of $ 7, quantity supplied is greater than quantity demanded which means there is surplus of goods in the market.

Decrease in price reduces quantity supplied and increases quantity demanded of good which result in equilibrium.

C. New quantity demanded = (900 - 100P)/2 = 450 - 50P

Qd\' = 450 - 50P

New Equilibrium: Qd\' = Qs

450 - 50P = 150 + 50P

450 - 150 = 100P

300 = 100P

P = $ 3

Q = 450 - 50(3) = 450 - 150

Q = 300 units