Microeconomics
Microeconomics
2nd Edition
ISBN: 9781464187025
Author: Austan Goolsbee, Steven Levitt, Chad Syverson
Publisher: Worth Publishers
Question
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Chapter 15, Problem 3P

 (a)

To determine

The demand side of the market.

 (a)

Expert Solution
Check Mark

Explanation of Solution

The quantity demanded of cheese is Qcd=30PCPW and the quantity demanded of wine is given as Qwd=30PCPW where the quantity demanded of cheese moves in the same direction of the quantity demand of wine. Therefore, the wine and cheese are linked on the demand side of the market.

 (b)

To determine

The supply and demand in the cheese market.

 (b)

Expert Solution
Check Mark

Explanation of Solution

The quantity demanded of cheese is given by Qcd=30PCPW and supply of cheese is given as QCS=PC. Now, equate the supply and demand in the cheese market.

30PCPW=PC

Now, set the price of cheese as a function of the price of wine.

30PCPW=PC2PC=30PWPC=3021PW2PC=150.5PW

Therefore, the price of cheese is PC=150.5PW.

 (c)

To determine

The supply and demand in the cheese market. 

 (c)

Expert Solution
Check Mark

Explanation of Solution

The quantity demanded of wine market is Qwd=30PCPW and supply of wine is given by  QwS=Pw. Now, equate the supply and demand in the wine market.

30PCPW=Pw

Now, set the price of wine as a function of price of cheese.

30PCPW=Pw2Pw=30PcPw=3021Pc2Pw=150.5Pc

Therefore, the price of wine is Pw=150.5Pc.

 (d)

To determine

The price of cheese.

 (d)

Expert Solution
Check Mark

Explanation of Solution

Substitute the price function of wine (described in part (c)) in to the price function of cheese (described in part (b)), to get the value of the price of cheese.

PC=150.5(150.5PC)=157.5+0.25PCPC=7.5+0.25PCPC0.25PC=7.50.75PC=7.5PC=7.50.75=$10

Therefore, the price of cheese is $10.

 (e)

To determine

The price of wine.

 (e)

Expert Solution
Check Mark

Explanation of Solution

The price function of wine (described in part (c)) is Pw=150.5Pc. Now, substitute the price of cheese (described in pat (d)) into this function.

Pw=15(0.5×10)=155Pw=$10

Therefore, the price of wine is $10.

 (f)

To determine

The equilibrium quantities of wine and cheese.

 (f)

Expert Solution
Check Mark

Explanation of Solution

Substitute the respective values described in part (d) and (e) into the demand function for wine.

Qwd=301010=10

Therefore, the quantity of wine produced is 10.

Substitute the respective values described in part (d), and (e) into the demand function of cheese.

Qcd=301010=10

Therefore, the quantity of cheese produced is 10.

Hence, the equilibrium quantities of wine and cheese is 10.

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