Question

Plaese do it by type not write.

1. Consider the following two equations representing the market for ponies in Moscow: (1) P = 2500 - 60QD (2) P = 500 + 40QS

a. Find the equilibrium price and quantity in the market.

b. Graph supply and demand in the market, and label the equilibrium point.

c. Assume that ponies are primarily purchased as a source of entertainment for children. Now suppose that a decrease in the price of technological inputs causes the price of video game systems to decrease by a significant amount. On a new supply and demand graph, show the initial equilibrium in the pony market (as in part b) and then show how this market will be impacted by the change in the video game market. Briefly explain your reasoning. What effect will this change have on market outcomes?

Answer 1

Ans)

1.
a.
P=2500-60Qd and P = 500 + 40Qs
The market is in equilibrium if Qs=Qd
2500-60Q=500+40Q
2500-500=40Q+60Q
100Q=2000
Q=20
P=2500-60(20)=2500-1200=1300

b.

c.

Ponies and video games are substitutes.Thus, a fall in the price of production of the video games will make thm cheaper than ponies.So consumers would now prefer more of video games and less of ponies.Thus, the demand for ponies will decrease and the demand curve will shift to the left.As a result, the equilibrium quantity and price will decrease.