Question

Questions 27 and 28 are connected.

27. These questions were motivated by the articles about the U.S. government’s raisin program designed to regulate the price of raisins. Assume the demand for raisins is estimated by the demand function QD = [a + c I] / Pb. The constant a = 80,000,000, the coefficient c=25, and the superscript b=1.1. “I” represents average household income, which is $60,000. In any growing season, the supply of raisins, measured in thousands of tons, depends on the amount of acreage devoted to the crop, the weather, and other factors such as crop disease and insect infestations. Assume this year the annual production of raisins is forecast to be 370,000 metric tons. Production from 2018 is shown in the table below for your information. Assume the U.S. does not import or export raisins or change its inventory level. With no government interference in the market, the equilibrium price for a ton of raisins would be:

a. $191 b. $1,102 c. $1,608 d. $2,220 e. $4,798

*This is how the question look like in the quiz.

Answer 1

Option d i.e., 2220.

Roughly the price of raisins come to be 2220. However if there is any production function given then the exact answer would change. The working is done below.

In Qo equilibrium, Q Quantly demanded Quantity supplied a + b 3 70,000 OM, 04 ) b at 25 80,000,000 + t x 60,000 340,000 On9 P 1.1 p'o 220 & org Price = bo 2 20 2 (approx) Scanned by TapScanner