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Suppose the supply and demand schedules for bicycles are as they appear in the following table. Price Quantity Demanded per Year (millions) Quantity Supplied per Year (millions) $170 43 27 210 39 31 250 35 35 300 31 39 330 27 43 370 23 47 Graph these curves and show the equilibrium price and quantity. Now suppose that it becomes unfashionable to ride a bicycle, so that the quantity demanded at each price falls by 8 million bikes per year. What is the new equilibrium price and quantity? Show this solution graphically. Explain why the quantity falls by less than 8 million bikes per year. Suppose instead that several major bicycle producers go out of business, thereby reducing the quantity supplied by 8 million bikes at every price. Find the new equilibrium price and quantity, and show it graphically. Explain again why quantity falls by less than 8 million. What are the equilibrium price and quantity if the shifts described in Test Yourself Questions 3(b) and 3(c) happen at the same time?

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Microeconomics: Principles & Policy

14th Edition
William J. Baumol + 2 others
Publisher: Cengage Learning
ISBN: 9781337794992

Solutions

Chapter
Section
BuyFindarrow_forward

Microeconomics: Principles & Policy

14th Edition
William J. Baumol + 2 others
Publisher: Cengage Learning
ISBN: 9781337794992
Chapter 4, Problem 3TY
Textbook Problem
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Suppose the supply and demand schedules for bicycles are as they appear in the following table.

Price Quantity Demanded per Year (millions) Quantity Supplied per Year (millions)
$170 43 27
210 39 31
250 35 35
300 31 39
330 27 43
370 23 47

  1. Graph these curves and show the equilibrium price and quantity.
  2. Now suppose that it becomes unfashionable to ride a bicycle, so that the quantity demanded at each price falls by 8 million bikes per year. What is the new equilibrium price and quantity? Show this solution graphically. Explain why the quantity falls by less than 8 million bikes per year. Suppose instead that several major bicycle producers go out of business, thereby reducing the quantity supplied by 8 million bikes at every price. Find the new equilibrium price and quantity, and show it graphically. Explain again why quantity falls by less than 8 million.
  3. What are the equilibrium price and quantity if the shifts described in Test Yourself Questions 3(b) and 3(c) happen at the same time?

To determine

(a)

To Graph:

The equilibrium quantity and equilibrium price.

Explanation of Solution

The following graph shows the equilibrium price and quantity in the market for bicycles:

To determine

(b)

To Find:

The new equilibrium price and quantity after a fall in the demand for bicycles.

To determine

(c)

To find:

The new equilibrium price and quantity after a fall in the supply of bicycles.

To determine

(d)

To Find:

The new equilibrium price and quantity after a decrease in demand and supply of bicycles.

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