You are an economist for the Vanda-Laye Corporation, which produces and distributes outdoor cooking supplies. The company has come under new ownership and management and will be undergoing changes in its product lines and operating structure. As an economist, your responsibilities include examining the market factors that affect success or failure of a product, including the supply and demand for the product, market conditions, and the behavior of competitors with similar products.
Your supervisor, Jorge, has assigned you the task of evaluating a new product. The new product, oven mittens, has several competitors in the marketplace, but your company will be using a new patented material that provides protection from heat and maintains a great deal of flexibility. The supply and demand functions for oven mittens are as follows:
Qd = 45 – 6.9P
Qs = –15 + 10P
where Qd is the quantity demanded, Qs the quantity supplied, and P the price.
Jorge has asked you to research the market and provide detailed responses to the following questions:
What is the equilibrium price and quantity for oven mittens? Using Microsoft Excel, construct a table that shows the quantity demanded, the quantity supplied, and the surplus or shortage associated with prices from $2 to $5.55. (Use appropriate intervals.) Indicate the level at which equilibrium is achieved. Graph the data, indicating the equilibrium level and the areas of shortage or surplus.
If a price floor were established at $4, what would happen in this market? Explain your answer.
If a price ceiling were established at $3, what would happen in this market? Explain your answer.
What will happen to the demand curve for the product if the following changes occur? Answer separately for each change, assuming each event to be independent of the other:
The price of the substitute Good A increases.
The price of the complementary Good C increases.