Assignment 1

1. The supply and demand function for butter is given by

Q = 110 - 5P
Q = 6P

a. Find the inverse function giving P as a function of Q.

b. What is the equilibrium price and quantity of butter?
c. Suppose that the price of butter is 15. Describe the situation in the butter
market and explain how the price adjusts.
d. Suppose that the price of butter is 7. Describe the situation in the butter market
and explain how the price adjusts
e. If demand increases by 20 percent, what will be the new equilibrium price and
quantity?
f. At what price would quantity demanded = 0.
g. At what price would quantity supplied = 0.

2. Q = 280-10P
Q = 10P

a. Find the inverse function giving P as a function of Q.

b. What is the equilibrium price and quantity?
c. Suppose a fire destroys some factories and quantity supplied decreases by 60
percent. What is the new equilibrium price and quantity?

3. If the supply function Q = 6 + 12P and the demand function Q = 150 – 6P

a. Find the inverse function giving P as a function of Q.

b. What is the equilibrium price and quantity?
c. If a difficulty in obtaining components reduces supply so that only half the
previous quantity is now supplied, find the new supply function, equilibrium
price and quantity.
d. If the availability of a substitute product reduces demand so that only half the
quantity previously demanded is now demanded, find the new demand
function, equilibrium price and quantity.