ECO Ch3 Question 7 & 8 (2015)

| October 3, 2018

Questions 7-8: short answer/problem solving over Foundations from Chapter 3.7. Use the following information to answer the Question. Suppose the market demand for pizza is given byQd= 300 – 20P and the market supply for pizza is given byQs= 20P -100, where P = price (per pizza)A. Graph the supply and demand schedules for pizza using \$5 through \$15 as the value of P. (10 points)B. In equilibrium, how many pizzas would be sold and at what price? (5 points)C. What would happen if suppliers set the price of pizza at \$15? Suppose the price is allowed to adjust from \$15 back to equilibrium—explain the adjustment process in 1-3 sentences. (10 points)D-E. Suppose the price of hamburgers, a substitute for pizza, doubles. This leads to a doubling of the demand for pizza. (At each price, consumers demand twice as much pizza as before.)D. Write the expression for the new market demand for pizza. (5 points)E. Find the new equilibrium price and quantity of pizza. (5 points)8. A local supermarket had been charging \$2.00 a pound for eggplants and selling 200 pounds a week. When it raised the price to \$2.50, eggplant sales fell to 190 pounds a week.A. Compute the price elasticity of demand for eggplants. SHOW your work (5 points).B. Is the demand for eggplants price elastic or inelastic? EXPLAIN in terms of the definitions AND factors that may influence the elasticity of demand for eggplants. (2-4 sentences, 5 points).C. When the price rises from \$2.00 to \$2.50, does the supermarket’s revenue from eggplant sales increase, decrease or remain unchanged? Explain carefully in 2-4 sentences. (5 points).

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