QUESTION

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# 1. The demand for pizzas in a large town is written as: $Q_{d}=26-10 P+5 P_{b}-P_{S}+10 Y$, where $Q_{d}$ is the quantity demanded, $P$ is the price of pizza, $P_{b}$ is the price of burrito, $P_{S}$ is the price of soft drinks sold in the pizza restaurants, and $\mathrm{Y}$ is personal income per month (in thousand dollars). Suppose $P_{b}=\$ 4 ; P_{S}=\$1$ and $\mathrm{Y}=3$ (in thousand dollars) The supply of pizza is: $Q_{s}=30+5 P-15 P_{\text {input }}$ Where: $P=$ price of pizza and $P_{\text {input }}=$ price of the inputs $=\$ 2$(i) Draw the demand curve. (ii) On the same panel above, draw the supply curve. (iii)Find the equilibrium price and quantity of pizza. (iv) Calculate the effect of the change in price of burrito on the equilibrium price and quantity using comparative statics. (v) Calculate the effect of the change in in the price of soda on the equilibrium price and equilibrium quantity using comparative statics. (vi) Calculate the effect of the change in in the income on the equilibrium price and equilibrium quantity using comparative statics. (vii) Calculate the effect of the change in the price of the input$\left(P_{\text {input }}\right)\$ on the equilibrium price and equilibrium quantity using comparative statics.  