Suppose the supply and demand schedules for bicycles are as they appear below.

a. Graph these curves and show the equilibrium price and quantity.

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 supplied 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 3(b) and 3(c) happen at the sametime?

Transcribed Image Text:

Quantity Demanded per Year (milions) 43 39 35 31 27 23 Qantity Supplied per Year (millions) 27 31 35 39 43 Price $170 210 250 300 330 370