Graphing Pizza Demand
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Consider the market for pizza. Suppose that the market demand for pizza is given by the equation Qd = 300 - 20Pd and the market supply for pizza is given by the equation Qs = 20Ps - 100, Qd = quantity demanded, Qs = quantity supplied, Pd = price consumers pay (per pizza).
a. Graph the supply and demand schedules for pizza using $5 through $15 as the values of Pd and Ps.
b. In equilibrium. How many pizzas would be sold and at what price?
c. What would happen if suppliers set the price of pizza at $15? Explain the market adjustment process.
d. Suppose that the price of hamburgers, a substitute for pizza, doubles. Assume that this leads to a doubling of the demand for pizza (that is, at each price consumers demand twice as much pizza as before). Write the equation for the new market demand for pizza.
e. Find the new equilibrium price and quantity of pizza.
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Solution Summary
A new equilibrium price and quantity are determined by graphical analysis.
Solution Preview
To create a graph, we first need to chart the quantities that will result from each price for demand:
Price: Quantity:
5 300 - 20(5) = 200
6 300 - 20(5) =180
7 300 - 20(5) =160
8 300 - 20(5) =140
9 300 - 20(5) =120
10 300 - 20(10) =100
11 300 - 20(11) =80
12 300 - 20(12) =60
13 300 - 20(13) =40
14 300 - 20(14) =20
15 300 - 20(15) =0
600 - 40Pd
Now repeat for Supply:
Price:
Price: Quantity:
5 20(5) - 100=0
6 20(6) - 100=20
7 20(7) - ...
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