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1. Suppose that the demand for pizza in a college town is
given by Qd = 1200 - 50P, where Qd is the quantity
demanded per week and P is the price per pizza. The
supply of pizza is given by Qs = 300 + 25P, where Qs is
the quantity supplied per week. What is the equilibrium
price and quantity of pizza in this market?
a) P = $12, Q = 600 pizzas
b) P = $10, Q = 550 pizzas
c) P = $8, Q = 500 pizzas*
d) P = $6, Q = 450 pizzas
Rationale: The equilibrium price and quantity are
determined by setting Qd = Qs and solving for P and Q.
This gives P = $8 and Q = 500 pizzas.
2. Suppose that the government imposes a tax of $2 per
pizza on the sellers of pizza in the previous question. What
is the new equilibrium price and quantity of pizza in this
market?
a) P = $10, Q = 450 pizzas*
b) P = $9, Q = 475 pizzas
c) P = $8, Q = 500 pizzas
d) P = $7, Q = 525 pizzas
Rationale: The tax shifts the supply curve up by $2, so the
new supply equation is Qs = 300 + 25(P - 2). Setting Qd =
Qs and solving for P and Q gives P = $10 and Q = 450
pizzas.
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