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# general equilibrium theory

Suppose that the demand for steel in Japan is given by the equation
Qs(demand)= 1200-4Ps+Pa+Pt, where Qs is the quantity of steel purchased (millions of tons per year), Ps is the price of steel (yen per ton), Pa is the price of aluminum (yen per ton). The supply curve for steel is given by Qs(supply)=4Ps.
Similarly, the demand and supply curves for aluminum and for titanium are given by Qa(demand)=1200-4Pa+Ps+Pt (demand curve for aluminum), and Qa(supply)=4Pa (supply curve for aluminum), Qt(demand)=1200-4Pt+Ps+Pa (demand curve for titanium), and Qt(supply)=4Pt (supply curve for aluminum).

(a) Find the equilibrium prices of steel, aluminum, and titanium in Japan.

(b) Suppose that a strike in the Japanese steel industry shifts the supply curve for steel to Qs(supply)=Ps. What does this do to the prices of steel, aluminum, and titanium?

(c) Suppose that growth in the Japanese beer industry, a big buyer of aluminum cans, fuels an increase in the demand for aluminum so that the demand curve for aluminum becomes Qa(demand)=1500-4Pa+Ps+Pt. How does this affect the prices of steel, aluminum, and titanium?

#### Solution Preview

suppose that the demand for steel in Japan is given by the equation
Qs(demand)= 1200-4Ps+Pa+Pt, where Qs is the quantity of steel purchased (millions of tons per year), Ps is the price of steel (yen per ton), Pa is the price of aluminum (yen per ton). The supply curve for steel is given by Qs(supply)=4Ps.
Similarly, the demand and supply curves for aluminum and for titanium are given by Qa(demand)=1200-4Pa+Ps+Pt (demand curve for aluminum), and Qa(supply)=4Pa (supply curve for aluminum), Qt(demand)=1200-4Pt+Ps+Pa (demand curve for titanium), and Qt(supply)=4Pt (supply curve for aluminum).

(a) Find the equilibrium prices of steel, aluminum, and titanium in Japan.

at the equilibrium, Qd = Qs for all the ...

#### Solution Summary

Find the equilibrium prices of steel, aluminum, and titanium in Japan.

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