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# price and the quantity of equilibrium sales

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Please give your answers in writing and with use of relevant diagrams and indicate what will happen to the price and the quantity of equilibrium sales under each circumstance.

Demand for refrigerators is often described as cyclical and very sensitive to refrigerator prices and interest rates. Given these characteristics, describe the effect of each of the following in terms of whether it would increase or decrease the quantity demanded/supplied or the demand/supply for refrigerators. Moreover, when price is expressed as a function of a function of quantity, indicate whether the effect of each of the following is an upward or downward movement along a given curve or instead involves an upward shift in the relevant demand/supply for refrigerators. Please give your answers in writing and with use of relevant diagrams and indicate what will happen to the price and the quantity of equilibrium sales under each circumstance.
A. An increase in interest rates
B. A severe economic recession
C. An increase in income of middle income Americans
D. Workers succeeding to form a labor union in many refrigerator plant around the county
E. Increased competition among the domestic producers and the foreign imports following the approval of accepting China as a member of WTO.

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#### Solution Summary

The prices and the quantity of equilibrium sales are emphasized.

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## Equilibrium Quantity and Prices

Assume that the weekly supply of 16 oz bottles of soda at convenience stores in the Twin Cities of Minneapolis and St. Paul is a function of price such that:

Qs = -20 + 80P

Where Q is the number of sodas sold in convenience stores (in thousands) and P is the soda price. Assume demand is perfectly elastic at a price of \$ 1.

A)Derive the soda supply curve where price is expressed as a function of output. Calculate the equilibrium level of output and convenience store sales revenue.

B)Derive a second curve based upon the assumption convenience store sales become subject to a 5-cent recycling fee. Calculate the price and quantity effects of the recycling fee. With perfectly elastic demand, who pays the economic burden of such a fee?

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