Question 1

Suppose you have been hired by a research firm trying to understand the market for Widgets (a hypothetical product). Your analysis of the data indicates that the Demand curve for Widgets is estimated to be linear and given by equation Q_d = 200 - 5P and the Supply curve for Widgets appears to be linear as well and is estimated as Q_s = 5P - 50. Graphically draw these two curves, labeling all relevant points (such as intercepts for each line) on the horizontal and vertical axes.

Question 2

Given that Demand is Q_d = 200 - 5P and Supply is Q_s = 5P - 50, your next assignment is to compute the equilibrium Price and Quantity in the market for Widgets. Indicate these values on the graph.

Question 3

The firm that hired you projects that changes in consumer demographics will cause the Demand curve to change to Q_d = 250 - 5P. Does this change represent an increase or decrease in the Demand curve? If the Supply curve remains the same (Q_s = 5P - 50), graphically draw these two curves, labeling all relevant points on the horizontal and vertical axes.

Question 4

Given that new Demand is Q_d = 250 - 5Pand Supply is Q_s = 5P - 50, your next assignment is to compute the new equilibrium Price and Quantity in the market for Widgets. Indicate these values on the graph.

You do not have to reproduce the graph for each question; for example, you may use one graph answering all four questions, as long as everything is clearly and unambiguously labeled. Please remember to:

• Label all axes (P, Q)
• Label all lines/curves (Demand, Supply)
• Label all relevant equilibrium points
• Label intercepts for your linear demand and supply. (Intercepts are the points where the lines intersect the axes. For example, if a demand curve intersects the price axis at P=100, indicating that at P=100, 0 units are demanded, you should label that point on the axis with the price of 100).
• Please limit your depictions of supply and demand only to the non-negative values of P and Q (e.g., utilize onlyQuadrant 1 of the coordinate plane). This means that your supply curve will have one applicable intercept on the P-axis, while the demand curve will have two applicable intercepts on the P- and Q-axes.