In Smalltown, Pennsylvania, the demand function for men’s haircuts is Q_d = 500 − 30p + 0.08Y, where Q_d is quantity demanded per month, p the price of a haircut, and Y the average monthly income in the town. The supply function for men’s haircuts is Q_s = 100 + 20p − 20w, where Q_s is the quantity supplied and w the average hourly wage of barbers.

a. If Y = $5000 and w = $10, use Excel to calculate quantity demanded and quantity supplied for p = $5, $10, $15, $20, $25, and $30. Calculate excess demand for each price. (That an excess supply is negative excess demand.) Determine the equilibrium price and quantity. Use Excel’s charting tool to draw the demand and supply curves.

b. Assume that Y increases to $6,875 and w increases to $15. Use Excel to recalculate quantity demanded, quantity supplied, and excess demand for p = $5, $10, $15, $20, $25, and $30. Determine the new equilibrium price and quantity. Use Excel to draw the new demand and supply curves. How can you explain the change in equilibrium?