Suppose the demand and supply curves for pizza is given by: Qd = 400 - 20P and t

Question

Suppose the demand and supply curves for pizza is given by:

Qd = 400 - 20P

and the market supply is given by:

Qs = 20p - 200, where P = price (per pizza)

a) In equilibrium, how many pizzas would be sold and at what price?

b) What would happen if suppliers of pizza set the price of pizza at $8.00? Explain the market adjustment process.

c) Suppose the price of hamburgers, a substitute for pizza doubles. This leads to a doubling of demand for pizza. Write the equation for the new market demand.

d) Find the new equilibrium price and quantity.

Explanation / Answer

at equillibrium demand= supply

so

400-20p=20p-200

so 40p=600
thus p= 600/40

= 15

so Q= 400-20*15

= 100

a). so pizza sold= 100

b). since suppliers set the pizza price @8$ this would increase the demand of pizza and supply of pizza is reduced so equillibrium will be disturbed and there is hortaze of pizza in the market

c).Qd= 800-40p

d). new equillibrium will be

800-40p=20p-200

60p=1000

p=$16.67

and quantity= 20*16.67-200

= 133

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