ECON 1101 Lecture Notes - Lecture 2: Economic Equilibrium

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3 Feb 2016
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Chapter 4- Market for performance-enhancing drugs
The demand and supply of a particular performance-enhancing drug
are:
D1: QD = 325 – 0.7P
S1: QS = -200 + 0.8P
a) Find the equilibrium price and quantity P1, Q1 and draw the
corresponding diagram
b) Due to a higher probability of detection the demand drops to
D2: QD = 250 – 0.7P
Find the new equilibrium price and quantity P2, Q2 and show the
change on the graph.
c) Assume that instead of part (b), the increased competition in this
market increases the supply of this drug to
S2: QS = -95 + 0.8P
Find the new equilibrium price and quantity P3, Q3 and show the
change on the graph.
d) Now assume that both changes from part (b) and (c) happen at the
same time. Find the new equilibrium price and quantity P4, Q4 and
show it on the diagram.
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