1. Suppose that the demand for pizza in a college town is

given by Qd = 1200 - 50P, where Qd is the quantity

demanded per week and P is the price per pizza. The

supply of pizza is given by Qs = 300 + 25P, where Qs is

the quantity supplied per week. What is the equilibrium

price and quantity of pizza in this market?

a) P = $12, Q = 600 pizzas

b) P = $10, Q = 550 pizzas

c) P = $8, Q = 500 pizzas*

d) P = $6, Q = 450 pizzas

Rationale: The equilibrium price and quantity are

determined by setting Qd = Qs and solving for P and Q.

This gives P = $8 and Q = 500 pizzas.

2. Suppose that the government imposes a tax of $2 per

pizza on the sellers of pizza in the previous question. What

is the new equilibrium price and quantity of pizza in this

market?

a) P = $10, Q = 450 pizzas*

b) P = $9, Q = 475 pizzas

c) P = $8, Q = 500 pizzas

d) P = $7, Q = 525 pizzas

Rationale: The tax shifts the supply curve up by $2, so the

new supply equation is Qs = 300 + 25(P - 2). Setting Qd =

Qs and solving for P and Q gives P = $10 and Q = 450

pizzas.