This problem involves solving demand and supply equations together to determine price and quantity.

a. Consider a demand curve of the form QD 5 22P 1 20, where QD is the quantity demanded of a good and P is the price of the good. Graph this demand curve.

Also draw a graph of the supply curve QS 5 2P 2 4, where QS is the quantity supplied. Be sure to put P on the vertical axis and Q on the horizontal axis. Assume that all the QS and Ps are nonnegative for parts

a,

b, and

c. At what values of P and Q do these curves intersect—that is, where does QD 5 QS?

b. Now, suppose at each price that individuals demand four more units of output—that the demand curve shifts to Q9 D 5 22P 1 24.

Graph this new demand curve. At what values of P and Q does the new demand curve intersect the old supply curve—that is, where does Q9 D 5 QS?

c. Now finally, suppose the supply curve shifts to Q9 S 5 2P 2 8.

Graph this new supply curve. At what values of P and Q does Q9 D 5 Q9 S? You may wish to refer to this simple problem when we discuss shifting supply and demand curves in later sections of this book.