1) Suppose that the demand for textbooks is QD = 120 ?o P and the supply for textbooks is QS = 5P. a) What is the market equilibrium price and quantity? b) Illustrate the market for textbooks ?o i.e. draw the demand and supply curves and identify the market equilibrium. c) Suppose that P=$15. Using your graph in part (b), illustrate what will happen in the market. d) Suppose that P=$15. Explain of how the market clears. e) Suppose that P=$15. Determine algebraically the size of the market disequilibrium (i.e. shortage or surplus) 2) Suppose Congress passes a law that states the price of gasoline may not exceed $6 per gallon (but may be lower). a) If the current price of gasoline is less than $6, what impact does this law have on the current price and quantity of gasoline in the US market? Illustrate this scenario with a graph. b) If the current price of gasoline is $6, what impact does this law have on the current price and quantity of gasoline in the US market? Explain. 3) The inverse demand curve for product X is given by: PX = 25 0.005Q + 0.15PY, where PX represents price in dollars per unit, Q represents rate of sales in pounds per week, and PY represents selling price of another product Y in dollars per unit. The inverse supply curve of product X is given by: PX = 5 + 0.004Q. a. Calculate the equilibrium price and quantity of X. Let PY = $10. b. Determine whether X and Y are substitutes or complements. 4) In 1992, the Occupational Safety and Health Authority passed the Bloodborne Pathogens Standard (BBP), which regulates dental office procedures. This regulation is designed to minimize the transmission of infectious disease from patient to dental worker. The effect of this regulation was both to increase the cost of providing dental care and to ease the fear of going to the dentist as the risk of contracting an infectious disease. a) Illustrate the effect of the BBP on the market for dental care. b) What is the effect of the BBP on the equilibrium price of dental care? Explain. 5) Harding Enterprises has developed a new product called the Gillooly Shillelagh. The market demand for this product is given as follows: Q = 240 4P a) At what price is the price elasticity of demand equal to zero? b) At what price is the price elasticity of demand equal to one? c) If the shillelagh is priced at $40, what is the point price elasticity of demand? 6) The demand for a bushel of wheat in 1981 was given by the equation QD = 3550 266P. At a price of $3.46 per bushel, what is the price elasticity of demand? If the price of wheat falls to $3.27 per bushel, what happens to the revenue generated from the sale of wheat? 7) In a city with a medium sized population, the equilibrium price for a city bus ticket is $1.00, and the number of riders each day is 10,800. The short-run price elasticity of demand is -0.60, and the short-run elasticity of supply is 1.0. a. Estimate the short run linear supply and demand curves for bus tickets. b. If the demand for bus tickets increased by 10% because of a rise in the world price of oil, what would be the new equilibrium price of bus tickets? c. If the city council refused to let the bus company raise the price of bus tickets after the demand for tickets increases (see (b) above), what daily shortage of tickets would be created? d. Would the bus company have an incentive to increase the supply in the long run given the city councils decision in (c) above? Explain your answer.