Chapter 1.4, Problem 31E

Suppose the demand and supply equations for a certain commodity are given by $p=ax+b$ and $p=cx+d$, respectively, where $a<0,c>0,$ and $b>d>0$ (see the following figure).

a. Find the equilibrium quantity and equilibrium price in terms of $a,b,c,$ and $d$.

b. Use part (a) to determine what happens to the market equilibrium if $c$ is increased while $a,b,$ and $d$ remain fixed. Interpret your answer in economic terms.

c. Use part (a) to determine what happens to the market equilibrium if $b$ is decreased while $a,c,$ and $d$ remain fixed. Interpret your answer in economic terms.