Question

8.2

In Smalltown, Pennsylvania, the demand function for men's haircuts is Qd=500−30p+0.08Y, Qd=500−30p+0.08Y, where Qd

Qd is quantity demanded per month, p the price of a haircut, and Y the average monthly income in the town. The supply function for men's haircuts is Qs=100+20p−20w, Qs=100+20p−20w, where Qs Qs is the quantity supplied and w the average hourly wage of barbers.

1. If Y=$5,000
2. Y=$5,000 and w=$10,
3. w=$10, use Excel to calculate quantity demanded and quantity supplied for p=$5,
4. p=$5, $10, $15, $20, $25, and $30. Calculate excess demand for each price. (Note that an excess supply is negative excess demand.) Determine the equilibrium price and quantity. Use Excel's charting tool to draw the demand and supply curves.
5. Assume that Y increases to $6,875 and w increases to $15. Use Excel to recalculate quantity demanded, quantity supplied, and excess demand for p=$5,
6. p=$5, $10, $15, $20, $25, and $30. Determine the new equilibrium price and quantity. Use Excel to draw the new demand and supply curves. How can you explain the change in equilibrium?

Answer 1

SOLUTION:-

(a)

Qd = 500 - 30p + 0.08y

Qs =100 + 20p -20w

y = $5000

w = $10

p	Qd	Qs	Excess Demand
5	750	0	750
10	600	100	500
15	450	200	250
20	300	300	0
25	150	400	-250
30	0	500	-500

Equilibrium Price =$20

Equilibrium Quentity =300

(b)

Qd = 500 - 30p + 0.08y

Qs = 100 + 20p -20w

y = $6875

w = $15

p	Qd	Qs	Excess Demand
5	900	-100	1000
10	750	0	750
15	600	100	500
20	450	200	250
25	300	300	0
30	150	400	-250

Equilibrium price = $25

Equilibrium Quantity = 300

THANK YOU.

If any quearies please leave your valuable comment on comment box.