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Chapter 3: Problem 19

The accompanying table gives the annual U.S. demand and supply schedules for pickup trucks. $$ \begin{array}{c|c|c} & \begin{array}{c} \text { Quantity of } \\\ \text { trucks demanded } \\\ \text { (millions) } \end{array} & \begin{array}{c} \text { Quantity of } \\\ \text { trucks supplied } \\\ \text { (millions) } \end{array} \\\ \$ 20,000 & 20 & 14 \\\ 25,000 & 18 & 15 \\\ 30,000 & 16 & 16 \\\ 35,000 & 14 & 17 \\\ 40,000 & 12 & 18 \end{array} $$ a. Plot the demand and supply curves using these schedules. Indicate the equilibrium price and quantity on your diagram. b. Suppose the tires used on pickup trucks are found to be defective. What would you expect to happen in the market for pickup trucks? Show this on your diagram. c Suppose that the U.S. Department of Transportation imposes costly regulations on manufacturers that cause them to reduce supply by one-third at any given price. Calculate and plot the new supply schedule and indicate the new equilibrium price and quantity on your diagram.

Short Answer

Expert verified
In conclusion, the defective tires on the pickup trucks led to a decrease in demand, which can be represented by a leftward shift of the demand curve. The new regulations imposed by the U.S. Department of Transportation caused manufacturers to reduce supply, resulting in a new supply schedule. The new equilibrium price and quantity after the costly regulations were imposed are $35,000 and 14 million pickup trucks, respectively.

Step by step solution

01

a. Plot the demand and supply curves and indicate the equilibrium price and quantity

The first step is to create the demand and supply curves using the given schedules. We can use the price points in the table to plot each curve accordingly. The intersection point of the two curves represents the equilibrium price and quantity. 1. Start by plotting the demand curve using the quantity of trucks demanded at each price. 2. Similarly, plot the supply curve using the quantity of trucks supplied at each price. 3. Locate the intersection point of the two curves to find the equilibrium price and quantity. Demand curve: \(\begin{cases} P = 20,000, & Q = 20 \\ P = 25,000, & Q = 18 \\ P = 30,000, & Q = 16 \\ P = 35,000, & Q = 14 \\ P = 40,000, & Q = 12 \end{cases}\) Supply curve: \(\begin{cases} P = 20,000, & Q = 14 \\ P = 25,000, & Q = 15 \\ P = 30,000, & Q = 16 \\ P = 35,000, & Q = 17 \\ P = 40,000, & Q = 18 \end{cases}\) The equilibrium price and quantity are where the two curves intersect, which is at the point \((16, 30,000)\), meaning the equilibrium price is \(30,000\) and there are 16 million pickup trucks demanded and supplied.
02

b. Effect of defective tires on the market for pickup trucks

1. If the tires used on pickup trucks are found to be defective, there will most likely be a decrease in the demand for pickup trucks, as consumers may not want to purchase trucks with faulty tires. 2. This decrease in demand can be represented by a leftward shift of the demand curve. 3. The new intersection point represents the new equilibrium price and quantity with the defective tires situation.
03

c. Calculate and plot the new supply schedule and indicate the new equilibrium price and quantity

1. Calculate the new supply schedule after the imposition of costly regulations by the U.S. Department of Transportation. Since the regulations cause manufacturers to reduce supply by one-third at any given price, we can simply divide the initial quantity supplied by 1.33 (rounded) at each price level. New supply schedule: \(\begin{cases} P = 20,000, & Q = 11 \\ P = 25,000, & Q = 12 \\ P = 30,000, & Q = 12 \\ P = 35,000, & Q = 13 \\ P = 40,000, & Q = 14 \end{cases}\) 2. Plot the new supply curve on the same diagram with the initial demand and supply curves. 3. Determine the new equilibrium price and quantity by finding the intersection point of the new supply curve and the demand curve. In this case, the new equilibrium price and quantity are \(35,000\) and 14 million pickup trucks.

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