During the European mad-cow scare of 2001, The Wall Street Journal ran an articl

Question

During the European mad-cow scare of 2001, The Wall Street Journal ran an article detailing an increased interest in horse-meat, especially in France. (I do not make this stuff up.) For what follows, you should assume that all horse parts are used once a horse is killed. 2.3. Now suppose that the annual demand for glue is QD 80-2P. The annual supply of glue is QS-20-4w 2P, where w is the price of horse hooves. All quantities are in thousands, and prices are in dollars. The rise in horse-slaughtering eventually causes the price of horse hooves to fall from $10 to $5. Find the change (using positive numbers for an increase and negative numbers for a decrease) in glue's equilibrium price Please enter a whole number, with no decimal point.

Explanation / Answer

Initial Qd = 80-2P and initial supply Qs = 20-4*10+2P = 2P-20

Initial equilibrium at Qd=Qs will be

80-2P = 2P - 20

4P = 100 or P = 25

New Qd = 80-2P and initial supply Qs = 20-4*5+2P = 2P

New equilibrium at Qd=Qs will be

80-2P = 2P

4P = 80 or P = 20

The change in equilibrium price is 5. (Change is absolute so we have taken it as positive otherwise the price has fallen by 5 (-5) units.

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