The custom T-shirt printing business has many competitors, so that the perfect competition
model may be considered a good approximation. Currently the market demand curve is given by
Q = 120 – 1.5p, whereas the market supply is given by Q = -20 + 2p.
(a) Determine the market equilibrium.
Suppose there is a T-shirt craze that increases demand by 10% (that is, for each price, demand is
now 10% greater than it was before the price increase).
(b) Determine the new demand curve.
(c) Determine the change in equilibrium quantity.
(d) If your answer to the previous question is different from 10%, explain this difference.
Now go back to the initial demand curve and suppose there is an increase in the cost of blank Tshirts, an essential input into the business of selling custom T-shirts. Specifically, for each unit by
each supplier, the production cost goes up by 10%.
(e) Determine the new supply curve.
(f) Determine the change in equilibrium price.
(g) If your answer to the previous question is different from 10%, explain this difference.
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