Question
Suppose the supply and demand schedules for bicycles are as they appear in the following table. a. Graph these curves and show the equilibrium price
Suppose the supply and demand schedules for bicycles are as they appear in the following table.
a. Graph these curves and show the equilibrium price and quantity.
Quantity Demanded Quantity Supplied
Price per Year (millions) per Year (millions)
$170 43 27
210 39 31
250 35 35
300 31 39
330 27 43
370 23 47
b. Now suppose that it becomes unfashionable to ride a bicycle, so that the quantity demanded at each price falls by 9 million bikes per year. What is the new equilibrium price and quantity? Show this solution graphically. Explain why the quantity falls by less than 9 million bikes per year.
c. Suppose instead that several major bicycle producers go out of business, thereby reducing the quantity sup- plied by 9 million bikes at every price. Find the new equilibrium price and quantity, and show it graphically. Explain again why quantity falls by less than 9 million.
d. What are the equilibrium price and quantity if the shifts described in Test Yourself Questions 2(b) and 2(c) happen at the same time?
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