1. The demand function for an inferior good is: Qd = a - bp and the supply function is: Qs = c + ep where a, b, c, and e are positive constants.
(a) Derive the market equilibrium price (p ∗ ) and quantity (Q∗ ) as functions of a, b, c, and e.
(b) Illustrate this equilibrium on a well annotated graph. Label all axes, equilibrium points, intercepts and slopes.
(c) How would you expect a to change (if at all), given a decrease in average consumer income. On a separate graph, illustrate graphically any change in the equilibrium price and quantity, intercepts, and slopes.