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1. Suppose that the demand for pizza is given by Qd = 100
- 2P, where Qd is the quantity demanded and P is the price.
The supply of pizza is given by Qs = 50 + P, where Qs is
the quantity supplied. What is the equilibrium price and
quantity of pizza in this market?
a) P = 25, Q = 75
b) P = 20, Q = 80
c) P = 15, Q = 85
d) P = 10, Q = 90
Answer: c) P = 15, Q = 85
Rationale: The equilibrium occurs when Qd = Qs. Solving
for P, we get P = 100 - Q/2. Substituting this into the
supply equation, we get Q = 50 + (100 - Q/2), which
simplifies to Q = 100/3. Plugging this into the demand
equation, we get P = 100 - (100/3)/2, which simplifies to P
= 50/3. Therefore, the equilibrium price is 50/3, or about
16.67, and the equilibrium quantity is 100/3, or about
33.33. However, since these are not among the options, we
choose the closest one, which is c) P = 15, Q = 85.
2. Suppose that the government imposes a tax of $5 per
unit on sellers of a good. How does this affect the supply
curve of the good?
a) It shifts the supply curve up by $5.
b) It shifts the supply curve down by $5.
c) It shifts the supply curve to the left by $5.
d) It shifts the supply curve to the right by $5.
Answer: a) It shifts the supply curve up by $5.
Rationale: A tax on sellers increases their marginal cost byÂÂ
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