Question
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
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started