AREC 1, Microeconomics

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Equation (1) gives a hypothetical demand curve for hybrid vehicles in the United States during the year 2000, where Q is the quantity demanded and P is the price. Equation (2) gives a hypothetical supply curve for hybrid vehicles in the United States for the same time period, where Q is the quantity supplied and P is the price.

(1) P = -0.01Q + 40,000

(2) P = 0.0025Q + 10,000

a) Draw both the demand and supply curves on the same graph, with price (P) on the vertical axis and quantity (Q) on the horizontal axis, on your own sheet of paper to assist in answering (b) and (c).

b) Find the equilibrium price P* and quantity Q*. Using what you know about what supply and demand curves represent, explain why P* and Q* are the equilibrium price and quantity for the hybrid vehicle market in the United States for 2000.

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