08 Jun Question Suppose that the supply
Question
Suppose that the supply of a flat panel TV stand is represented by QS= 8P–20 Pi–200, where Pis the price of the stand and Piis the price of the hardware needed to hold the stand together. All prices are in dollars and quantity is in units. Assume that the current hardware price is $5.
a. Suppose that the demand for the TV stand is QD= 4,700 –2P+ 0.5I, where Pis the price and Iis a representative household’s income. What are the current equilibrium price and quantity if income is $1,000?
b. Suppose that income falls to $800. What is the new equation for the demand for TV stands as a function of price P? Does this correspond to an increase or decrease in the demand for the TV stands? Does the demand curve shift to the left or right?
c. Suppose that the price of the hardware increases to $6. What is the new equation for the supply of TV stands as a function of price P? Does this correspond to an increase or decrease in supply? Does the supply curve shift to the left or right?
d. What will be the new equilibrium price and quantity of the TV stand after the changes in supply and demand [after all changes in parts (b) and (c)]?
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