1.(30 points -- 10 points each) Consider the market for cars. Answer each of the following questions.

a. Draw the supply and demand graph for cars below assuming the market operates at an equilibrium price of $30,000 and an equilibrium quantity of 5,000 cars per month.

b. Assuming cars and tires are complements in production, what will happen in the market for cars if the price of tires increases? Show the effects on your market graph and explain in words. c. Based on this information, will producer surplus in the market for cars increase or decrease? Explain.

2. (70 points -- 10 points each) Consider the market below. Answer each of the following questions.