Economics 101 PRINCIPLES OF MICROECONOMICS
	Fall 2020

Supply and Demand

The homework should be written on paper and a picture should be submitted by E-mail.  When calculations are required, you must show all work. If no work is shown, no credit will be given. The homework is due by 9:30 AM PDT on Wednesday, September 2.

1. Suppose the market for the Toyota Prius in a certain area has the following demand and supply curves:

Q_D = 1090 - 20 P

Q_S = - 350 + 40 P

where price is for a single Prius (in thousands of dollars) and quantity is in thousands of cars sold.

a. What is the equilibrium price and quantity of Prius' in this market?

b. Is there a surplus or shortage in this market if the price is initially $23 thousand? How large is the surplus or shortage? Show this situation graphically. Explain how the market would move from this price to the equilibrium price.

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2. Use supply and demand analysis to determine the effect on the market for each event below. Illustrate each situation graphically and indicate explicitly what happens to price and quantity in each case.

a.  Suppose McDonald's decides to reduce the price of coffee products sold in its restaurants.  How would that affect the market for Starbucks coffee products?

b.  A development company can build either houses or retail stores on a plot of land it owns.  How would an increase in the price of houses affect the market for retail stores?

c.   In the 2019 movie "Booksmart," the ride service Lyft was featured prominently.  How would that affect the market for Lyft rides? 

d.  Use the following article to explain what is happening in the market for healthcare (after reading the introduction, skip to the part about healthcare):

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e.  Suppose incomes are falling due to the weak economy.  At the same time, car dealers expect the price of used economy cars to be higher in the future.  How would these two events affect the market for used economy cars right now?