The market demand and supply of cement is given by: Qd = 5,000 - 10P + 5Y

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Question:

The market demand and supply of cement is given by:

Qd = 5,000 - 10P + 5Y Qs = 1,500 + 2.5P - 25W

where Qd = Quantity Demanded,
Qs = Quantity Supplied,
P = Price of Cement,
Y = Average Household Income, and
W = Average Wage of Employees in Cement Industry.

1. Given an income level (Y) of $1,000 and a wage (W) of $10, graph the demand and supply curve. Does a surplus or shortage exist when the price of cement is $500? Explain. How much is the surplus or shortage?

2. Given an income level (Y) of $1,000 and a wage (W) of $10, what is the equilibrium quantity and price in the cement market? Show work.

3. What happens to the equilibrium quantity and price if income increases to $1,500. Illustrate your answer with a graph.