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1. Suppose that the market for bananas in Ithaca on an average weekday is given by...

1. Suppose that the market for bananas in Ithaca on an average weekday is given by the following equations:

demand: P = 120 – Q

supply: P = 30 + 2Q

where P is the price of a bushel in dollars and Q is the quantity in bushels.

a. What is the equilibrium price and quantity? Show graphically

b. Assume that the National Institutes of Health issues a study showing that bananas reduce the risk of cancer. The demand for bananas increases to:

demand’: P = 150 - Q

At the original equilibrium price, is there a shortage or a surplus? Of how much?

c. What is the new equilibrium price and quantity? Show graphically.

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