Illustrate what would happens to the equilibrium price

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Reference no: EM1346326

The widget industry in Springfield is competitive, with numerous buyers and sellers.

Consumers don't differentiate among the various brands of widgets (no product differentiation).

The industry demand curve is given by:
Qd = 998 - 5Pw + 4 Y - 6Pg
And the industry supply curve is given by
Qs = +15Pw - 3 Wage

Where Pw represents the price of widgets, Pg is the price of gasoline, Y is disposable personal income in Springfield, and Wage is wages paid to workers in widget factories. Currently, Y= $10, Pg = $3, and Wage = $20.

Suppose Springfield's economy moves into a recession and Y falls to $9 and rising unemployment allows widget makers to reduce wages to $18 per hour. Illustrate what would happens to the equilibrium price and quantity?

Nothing happens to the market equilibrium price or quantity.

Equilibrium price falls; the effect on equilibrium quantity is uncertain.

Equilibrium price rises; the effect on equilibrium quantity is uncertain.

Equilibrium quantity rises; the effect on equilibrium price is uncertain.

Equilibrium quantity falls; the effect on equilibrium price is uncertain.

Reference no: EM1346326

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