Question: Consider the wine and cheese problem you solved in Problem 3. Suppose the demand for wine changes so that at every price, 10 fewer bottles

Consider the wine and cheese problem you solved in Problem 3. Suppose the demand for wine changes so that at every price, 10 fewer bottles are demanded.
a. Hold the price of cheese constant, and calculate the partial equilibrium effects of the change in the demand for wine. What happens to the price? What happens to the quantity?
b. Plug the new price of wine into the demand for cheese. Does the shock to the wine market cause the demand for cheese to increase or decrease?
c. Calculate the effect of the change in demand for cheese on the price of cheese and the quantity of cheese sold.
d. Plug the new price of cheese into the demand for wine. Does it cause the demand for wine to increase or decrease? Does the wine market get pushed farther from its initial equilibrium, or back toward it? How will these changes in the wine market feed back into the cheese market?
e. Following the steps taken in Problem 3, but using the new cheese demand function, solve for the new general equilibrium price and quantity of both wine and cheese.
f. How does the final general equilibrium price and quantity of wine you calculated in (e) compare to the partial equilibrium effects you calculated in part (a)?

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a Equating the new demand for wine and supply for wine we get Q w d 20 P c P w P w Q w s P w 10 05 P ... View full answer

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