1.(20 total points) Suppose the demand for guitars in State College is given by Qd = 360 - 4P where Qd is the quantity demanded, and P is the price of guitars.Also, suppose the supply of guitars is given by Qs = 2P - 60, where Qs is the quantity supplied of guitars.

A) (5 points). Suppose the actual price of guitars is $80.Determine if there is excess demand, excess supply, or if the market is in equilibrium.Circle the correct answer.

a) The market is in equilibrium.

b) There is excess demand (a shortage).

c) There is excess supply (a surplus).

B) (5 points)If you answered either b) or c) above, calculate the value of the excess demand or excess supply and write the amount in the space below:

Excess demand or supply =

___________________________

C)(5 points) What is the slope of the demand curve?

D) (5 points) Calculate the value of Consumer Surplus when this market is in equilibrium,

CS = ________________________

2. (30 total points) Using a graph, illustrate each of the following situations.Your graph should show an initial supply and demand curve, and it should also show the correct shift of either the Demand or Supply curve.You should also indicate for each situation what will happen to the equilibrium price and quantity of the good.

A) Guitars and guitar strings are complements.The price of guitars rises.Illustrate the market for guitar strings.

B) Peaches and plums are substitutes.The price of peaches rises. Illustrate the market for plums.

C) Guano is used as a fertilizer for growing oranges.The price of guano goes decreases. Illustrate the market for oranges.