In both the United States and France, the demand for haircuts is given by Q b =

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In both the United States and France, the demand for haircuts is given by Qb = 300 – 10p. But in the United States, the supply is given by Qs = -300 + 20p, while in France, the supply is given by Qs = -33.33 + 6.67p. 

a. Graph supply and demand for haircuts for each country. (Use the same scale on each axis and graph carefully!)

b. Solve for the equilibrium price and quantity of a haircut in each country.

c. Suppose that the demand for haircuts in the United States increases by 100 units at each price, so the new demand is Qb = 400 – 10p. Place this new demand curve in the appropriate graph, and solve for the new equilibrium price and quantity in the United States.

d. Suppose that, in a similar fashion, the demand for haircuts in France increases by 100 units at each price. Add the new demand curve for haircuts to the appropriate graph, and solve for the new equilibrium price and quantity.

e. Drawing on your answers to (c) and (d), comment on the following statement: “The impact of an increase in demand depends critically on the slope of the supply curve.”

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Microeconomics

ISBN: 9781319105563

3rd Edition

Authors: Austan Goolsbee, Steven Levitt, Chad Syverson

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