Question

4. The demand and supply functions for sweatshirts (the basic grey kind) are as follows:

Demand & Supply

Quantity Supplied Price            (per period) 10      22,000 9      19,000 8       16,000 7       13,000 6       10,000 5       7,000 4       4,000 3       1,000 2              0

Quantity Demanded Price          (per period) 10               15,000 9               15,500 8               16,000 7           16,500 6               17,000 5           17,500 4           18,000 3               18,500    2       19,000

a) Graph the demand and supply functions for sweatshirts and find the equilibrium price and quantity.

b) What effect will an increase in the price of gym shoes (a complement) have on the equilibrium price and quantity of sweatshirts, all else constant? Illustrate the effect of using your graph.

c) What effect will a wage increase for workers in the sweatshirt industry have on the equilibrium price and quantity of sweatshirts, all else constant? Illustrate the effect using your graph.

Answer 1