The Rock and Roll Hall of Fame has asked you, a world-renowned music critic, to analyze the market for guitars. Suppose demand for guitars is a function of the price of guitars, P, and the price of hand massages, Ph. Hand massages are a complement to guitars since lots of playing makes hands very sore. The supply of guitar is a function only of the price of guitars, P. a. The Rock and Roll Hall of Fame wants to know how the market equilibrium price and quantity of guitars, P* and Q*, will be impacted if there is a decrease in the price of hand massages Ph. Use a diagram for the market for guitars, assuming downward sloping demand and upward sloping supply, to provide an answer, and explain why the answer makes sense using the concept of complementary goods. b. The Rock and Roll Hall of Fame is worried your answer concerning the impact on price might be wrong because it does not precisely measure the demand and supply functions for guitars. Use the most general forms of the demand and supply functions (Qa = D(P, Ph) & Qs = S(P) ) and calculus, to demonstrate that you do not need to know the exact functions. Show that your predictions for equilibrium price will be correct as long as demand for guitars slopes down, and supply slopes up, assuming a massage is a complementary good with respect to guitars. Use calculus to show that your prediction for equilibrium quantity holds under the same assumptions needed in the previous part. C.
The Rock and Roll Hall of Fame has asked you, a world-renowned music critic, to analyze the market for guitars. Suppose demand for guitars is a function of the price of guitars, P, and the price of hand massages, Ph. Hand massages are a complement to guitars since lots of playing makes hands very sore. The supply of guitar is a function only of the price of guitars, P. a. The Rock and Roll Hall of Fame wants to know how the market equilibrium price and quantity of guitars, P* and Q*, will be impacted if there is a decrease in the price of hand massages Ph. Use a diagram for the market for guitars, assuming downward sloping demand and upward sloping supply, to provide an answer, and explain why the answer makes sense using the concept of complementary goods. b. The Rock and Roll Hall of Fame is worried your answer concerning the impact on price might be wrong because it does not precisely measure the demand and supply functions for guitars. Use the most general forms of the demand and supply functions (Qa = D(P, Ph) & Qs = S(P) ) and calculus, to demonstrate that you do not need to know the exact functions. Show that your predictions for equilibrium price will be correct as long as demand for guitars slopes down, and supply slopes up, assuming a massage is a complementary good with respect to guitars. Use calculus to show that your prediction for equilibrium quantity holds under the same assumptions needed in the previous part. C.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:2.
The Rock and Roll Hall of Fame has asked you, a world-renowned music critic, to analyze the market for guitars. Suppose
demand for guitars is a function of the price of guitars, P, and the price of hand massages, Ph. Hand massages are a
complement to guitars since lots of playing makes hands very sore. The supply of guitar is a function only of the price of
guitars, P.
a. The Rock and Roll Hall of Fame wants to know how the market equilibrium price and quantity of guitars, P* and
Q*, will be impacted if there is a decrease in the price of hand massages Ph. Use a diagram for the market for
guitars, assuming downward sloping demand and upward sloping supply, to provide an answer, and explain why
the answer makes sense using the concept of complementary goods.
b. The Rock and Roll Hall of Fame is worried your answer concerning the impact on price might be wrong because it
does not precisely measure the demand and supply functions for guitars. Use the most general forms of the
demand and supply functions (Qa = D(P, Ph) & Qs = S(P) ) and calculus, to demonstrate that you do not need to
know the exact functions. Show that your predictions for equilibrium price will be correct as long as demand for
guitars slopes down, and supply slopes up, assuming a massage is a complementary good with respect to guitars.
Use calculus to show that your prediction for equilibrium quantity holds under the same assumptions needed in
the previous part.
C.
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