Question

4.The article mentions that when prices are low, farmers may have an incentive to plant additional acres. Explain why this does or does not conform with the principle of marginal analysis. Feel free to use an example of how a farmer may choose whether or not to plant an additional acre of corn to explain your answer. (2 points)

5.Using a supply and demand diagram, illustrate and explain how we might expect equilibrium price and quantity for corn to change ifU.S. farmers respond to low prices by planting more acres of corn. Would you recommend this strategy? Be sure to label your graphs! (2 points)Part B: Demand, Supply, and Market EquilibriumAnswer the next 5 questions using the following information:Consider a market for truffles (expensive mushrooms)with the following demand and supply functions(P = price, Q = quantity):?"=250−2?"?)=15+3?)

6.Graph the above functions and calculate the equilibrium price and quantity for the above market. (2 points)

7.Suppose that external forces set the price of truffles at $175/unit. What is happening in the market? If there is a shortage or excess supply, calculate how much. Display this on your graph created in part 1. (2 points)

8.Explain in words why an excess supply or shortage will not persist in the long termin a competitive market. (2 points)

9.Suppose consumer preferences for truffles change and consumer demand is nowgiven by ?"=−4?"+300, what is the new equilibrium price and quantity? (2 points)

10.Consider two changes in the market related to truffles. First, consumers view porcini mushrooms and trufflesas substitutesand the price of porcini mushrooms increases. Second,there is the arrival of a new invasive pest species that feedsspecifically on truffles in the Northern Hemisphere. Starting with a market in equilibrium, what happens to demand, supply, equilibrium price and equilibrium quantity? Describe each effect qualitatively. Use a graph to help explain your reasoning. (4 points

Answer 1

Answer 4 - It does not conform with the principle of marginal analysis. Marginal analysis examines extra benefits of an activity compared to the additional costs incurred on it.

When prices of corn are low, farmers will not have an incentive to plant additional acres because the cost to be spent on planting will be more as compared to the future benefits which will arise from it.

A farmer may choose to whether plant or not to plant corn by calculating the total cost which will be incurred on it. Total cost would include the cost of seeds, land, labour, irrigation facilities, fertilizers and pesticides.

In this case, if the market price of corn is already low. Moreover, the additional costs are also to be incurred for planting it. Hence, it will result in higher additional costs as compared to the benefits which will arise in future.