8.2

In Smalltown, Pennsylvania, the demand function for men's haircuts isQd=50030p+0.08Y, Qd=50030p+0.08Y,whereQd

Qdis quantity demanded per month,pthe price of a haircut, andYthe average monthly income in the town. The supply function for men's haircuts isQs=100+20p20w, Qs=100+20p20w,whereQs Qsis the quantity supplied andwthe average hourly wage of barbers.

1. IfY=$5,000
2. Y=$5,000andw=$10,
3. w=$10,use Excel to calculate quantity demanded and quantity supplied forp=$5,
4. p=$5,$10, $15, $20, $25, and $30. Calculate excess demand for each price. (Note 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.
5. Assume thatYincreases to $6,875 andwincreases to $15. Use Excel to recalculate quantity demanded, quantity supplied, and excess demand forp=$5,
6. 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?