二、EXERCISES 1.Suppose the demand curve for a product is given by Q=3002P+4I.where lis average income measured in thousands of dollars.The supply curve is Q=3P-50. a.If I=25,find the market clearing price and quantity for the product. Given I=25,the demand curve becomes Q=300-2P+4*25.or Q=400-2P Setting demand equal to supply we can solve for P and thenQ: 4002P=3P-50 P=90 Q=220. b.If I=50,find the market clearing price and quantity for the product. Given I=50,the demand curve becomes Q=300-2P+4*50.or Q=500-2P Setting demand equal to supply we can solve for P and then Q: 500-2P=3P.50 P=110 Q=280. c.Draw a graph to illustrate your answers. Equilibrium price and quantity are found at the intersection of the demand and supply c g When the income level increases in part b.the demand curve w hif and to the right.The of the ew demand curve and the supply curves the newequ point. 2.Consider a competitive market for which the quantities demanded and supplied (per year)at various prices are given as follows: Price Demand Supply () (millions) (millions) 22 80 20 16 100 18 120 16 20 Calculate the price elasticity of demand when the price is $80 and when the price is $100. We know that the price elasticity of demand may be calculated using equation 2.1 from the text:二、EXERCISES 1. Suppose the demand curve for a product is given by Q=300-2P+4I, where I is average income measured in thousands of dollars. The supply curve is Q=3P-50. a. If I=25, find the market clearing price and quantity for the product. Given I=25, the demand curve becomes Q=300-2P+4*25, or Q=400-2P. Setting demand equal to supply we can solve for P and then Q: 400-2P=3P-50 P=90 Q=220. b. If I=50, find the market clearing price and quantity for the product. Given I=50, the demand curve becomes Q=300-2P+4*50, or Q=500-2P. Setting demand equal to supply we can solve for P and then Q: 500-2P=3P-50 P=110 Q=280. c. Draw a graph to illustrate your answers. Equilibrium price and quantity are found at the intersection of the demand and supply curves. When the income level increases in part b, the demand curve will shift up and to the right. The intersection of the new demand curve and the supply curve is the new equilibrium point. 2. Consider a competitive market for which the quantities demanded and supplied (per year) at various prices are given as follows: Price ($) Demand (millions) Supply (millions) 60 22 14 80 20 16 100 18 18 120 16 20 a. Calculate the price elasticity of demand when the price is $80 and when the price is $100. We know that the price elasticity of demand may be calculated using equation 2.1 from the text: