Managerial Economics & Organizational Architecture 6th Edition by James Brickley , Clifford Smith ,Jerold Zimmerman

Exercise 11

Suppose that annual demand in the U.S. market for ice cream cones can be expressed as Q D = 800 + 0.2 I - 100 P , where Q D is the number of cones demanded in millions of cones, I equals average monthly income in dollars, and P is price in dollars per cone. Supply can be expressed as Q S = 200 + 150 P (with the same units for quantity and price).
a. Graph the demand and supply curves for ice cream cones, assuming that average monthly income is $2,000, and solve for the equilibrium price and quantity.
b. Now assume that average monthly income drops to $750 and supply is unchanged. Draw the new demand curve on the same graph as used in ( a ) above and solve for the new equilibrium price and quantity. How would you describe the shift in demand intuitively