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

a. Consider a demand curve of the form

QD = –2P + 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 = 2P – 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 = QS?

b. Now suppose at each price that individuals demand four more units of output—that the demand curve shifts to

QD = –2P + 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 QD = QS?

c. Now, finally, suppose the supply curve shifts to

QS = 2P – 8

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

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