Problem: Consider a demand function P = 10 - 2Qd + Y, and the supply function P = 3 + Qs - w, where P is the market price, Qd is the quantity demanded, Qs is the quantity supplied, Y is the income, w is the labor cost.

Required:

1. What are the demand curve and supply curve when Y = 2 and w = 1. Draw those curves.

2. What are the equilibrium quantity and equilibrium price?

3. What happens to the demand curve if the income increases by 1 and the supply curve if labor cost increases by 2.

4. What are the new equilibrium price and quantity after the changes?