Question

The custom T-shirt printing business has many competitors, so that the perfect competition model may be considered a good approximation. Currently the market demand curve is given by Q = 120 − 1.5p, where the market supply is given by Q = −20 + 2p a）What is the market equilibrium price and quantity?

b）Suppose there is a T-shirt craze that increases demand by 10% (that is, for each price, demand is now 10% greater than it was before the price increase). What is the new demand curve?)

c）Now go back to the initial demand curve and suppose there is an increase in the cost of blank T-shirts, an essential input into the business of selling custom T-shirts. Specifically, for each unit by each supplier, the production cost goes up by 10%. What is the new supply curve?

Answer 1

a)  

Qd=Qs

120-1.5P = -20+2P

140 = 3.5P

P = 140/3.5 = 40

Q = 120-1.5*40 = 120- 60 = 60

Equilibrium Q = 60 and price = 40

b)

P	Qd	Qs	New Qd
0	120	-20	132
10	105	0	115.5
20	90	20	99
30	75	40	82.5
40	60	60	66
50	45	80	49.5
60	30	100	33
70	15	120	16.5

c)

P	Qd	Qs	New Qs
0	120	-20	-18
10	105	0	0
20	90	20	18
30	75	40	36
40	60	60	54
50	45	80	72
60	30	100	90
70	15	120	108