Question

2. Suppose the market for wheat in the US is represented by: Q = 1800 + 240p Q=3550 - 266p Find P, Q, Ed and Es at the equilibrium. In one year, bad weather destroyed the harvest of wheat. Depict the impact on the wheat market in the US. How does it affect the price of wheat? Using the above elasticities, explain why the impact should be strong. (Hint: you should use one of the elasticities from (a))

Answer 1

.. 22 suppose the masket for wheat in the us is represented by : . Q = 1800+ 240p Q = 3550 - 266P as Now at equilibrium demand equals supply. Tunce) 1800+ 240P = 3550 - 266P 2) : 240P +266 P = 3550 - 1800 506 P - 1750 =) P- 3.46 equilibrium quantity will be tond by substituting P= 3.46 in either demand or in supply equation. Hunces Q.= 1800+ 240p 2) Q = 1800 +240 X3.46) 2) Q = 2630, 4 mits Now, elasticity of demand Ed = do e Now demand function Q = 18001 2400 3550-2660 de - - 266 Now, ect Ed will be tomd by substituting p= 3.46 and Q = 2630.4 in Ed baction. tice; Ed=-266* ( 346 ) = -0.35 1263014.) cs Scanned with CamScanner

Now supply fruction Q = 1800 +240 P Now dą = 240 ... Now elasticity of supply. Es = da je substituting da = 240, P= 3.46 and Q=2630.4 we out, 3:46 :: Es = 240 * : 2630144 - 0.32 2630.4 Huuce equilibrium p= 3:46, Q = 2630.4 Ed 3-0.3 $ and Es- sits 0.32 be Hue both elasticity of demand Ed iie absolute value of Ed ie Ed 1= 0.35 Cs and esperie 0.32 es less them 1. Inte

tuce, both demand and supply of wheat is in elastic Hue as elasticity of demand é t is in classic, hence, 1% increase in wheat puce will reduce the puantity demanded of wheat by less than 1%. Hace here; as bad whether des foyed the harunt. of wheat, the supply cave of wheat will litt let tward and price of wheat will se, how can quantity demanded will not much and this to tal reveme earned by liom will increase as increase in price will sign the decline in quantity demanded due dis price increase Hace Price will rise by a larger proportion as this pice change will not eftect the quantity demanded much as both. demand ... and supply is in elastic: Out Scanned with CamScanner