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2. Consider the market for apple juice. In this market, the supply curve is given by QS = 10PJ 5PA and the demand curve is

2. Consider the market for apple juice. In this market, the supply curve is given by

QS = 10PJ 5PA and the demand curve is given by QD = 100 15PJ + 10PT , where J denotes

apple juice, A denotes apples, and T denotes tea.

(a) Assume that PA is fixed at $1 and PT = 5. Calculate the equilibrium price and

quantity in the apple juice market.

(b) Suppose that a poor harvest season raises the price of apples to PA = 2. Find the

new equilibrium price and quantity of apple juice. Draw a graph to illustrate your answer.

(c) Suppose PA = 1 but the price of tea drops to PT = 3. Find the new equilibrium

price and quantity of apple juice.

(d) (8 points) Suppose PA = 1, PT = 5, and there is a price ceiling on apple juice of P = 5. What is J the excess demand for apple juice as a result? Draw a graph to illustrate your answer

d

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