The following statements describe supply and demand conditions in the markets for cheese and wine, respectively.
• The demand for cheese is given by Qcd = 30 - Pc - Pw, where Qcd is the quantity of cheese demanded each week in ounces, P c is the price of a pound of cheese, and P w is the price of a bottle of wine.
• The demand for wine is given by Qwd = 30 - Pc - Pw.
• The supply of cheese is given by Qcs = Pc.
• The supply of wine is given by Qws = Pw.
a. Are wine and cheese linked on the supply side of the market, or on the demand side?
b. Equate supply and demand in the cheese market, and simplify to express the price of cheese as a function of the price of wine.
c. Equate supply and demand in the wine market, and simplify to express the price of wine as a function of the price of cheese.
d. Substitute the expression for the price of wine you found in (c) into the equation you found in (b) to solve for the price of cheese.
e. Plug the price you calculated in (d) into the expression you derived in (c) to solve for the price of wine.
f. Plug the prices of wine and cheese you found in (d) and (e) back into either the supply or demand functions for wine and cheese to find the equilibrium quantities of wine and cheese that will be sold.