Problem 1. The table below shows the demand and supply schedules for gum:

Quantity Quantity

Price Demanded Supplied

(cents per pack) (millions of packs per week)

20 180 60

30 160 80

40 140 100

50 120 120

60 100 140

70 80 160

80 60 180

90 40 200

100 20 220

a. Draw a graph of the market for gum and mark in the equilibrium price and quantity.

b. Suppose that the price of gum is 70 a pack. Describe the situation in the gum market and explain how the price adjusts.

c. Suppose that the price of gum is 30 a pack. Describe the situation in the gum market and explain how the price adjusts.

Problem 2. In Problem 1, a fire destroys some factories that produce gum and the quantity of gum supplied decreases by 40 million packs a week at each price.

a. Explain what happens in the market for gum and draw a graph to illustrate the changes.

b. If at the time the fire occurs there is an increase in the teenage population, which increases the quantity of gum demanded by 40 million packs a week at each price, what are the new equilibrium price and quantity of gum? Illustrate these changes on your graph.