Question

In 2011, the demand for rice in India was given by Qd = 100-2p. Here Qe is the quantity demanded in kilograms and PR is the price of rice in rupees. Agriculture in India relies heavily on the monsoon rains. 2011 saw a plentiful monsoon and the supply of rice was given by Q. = 10+ PR (1) What was the equilibrium price of rice in India in 2011? How much rice was sold in the market? Draw a properly labeled diagram to illustrate your answer. (ii) The rains in 2012 are not as good. In fact a lot of regions are facing a drought like situation. Discuss what might happen to the supply curve of rice in 2012? Will a lack of rains affect the demand for rice? Discuss. (iii) Now suppose demand is not affected. Is Q. = 5 +0.5PR a possible candidate for the new supply function? How about Q. = 5+2PR? Why? (iv) If the new supply function is indeed given by Q. = 5 + 0.5PR what is the new equilibrium price and quantity? Illustrate your answer on the same graph as for the previous part of the question. (v) The government wants to help the poor by keeping rice prices in check. It decides to import some rice into the country. The supply function for imported rice is given by Qimp. = 5+0.5pR. What is the new supply function for the Indian market? Calculate the new equilibrium and illustrate on the graph you have drawn previously (vi) Will the consumers favour the new policy? What about rice farmers? Why?

Answer 1

BLOSSOM Sky Bird (1) Qd = 100-2PR , Qs = 1oot PR PR = Price of site Equilibrium out put in 2011 will be at where Qd = QS . 100-2PR = 10+PR 90=3 PR.: PR = 30 : Equilibrium price of rice = 308 Substituting Prin Demand function, we will get equilibly ium quantity Ad =100-2x30 = 100-60= Goka 100 Supply Polce 30 Demon 0 10 20 Quantity 11) Drough will destroy the crops. So Supply will fall so in 2012 supply nuove zbitt's left But demand won't chande Rice food is an babit and one can't reduce os increas consa Suddenly .Demond Curve undecided. inf St. Pe

in New Supply Cuove is Qs = 51.58% : Qd = 100-2P, Gde Os . 100-288 = 51.480 , 95959%, Po=1190 Po = 38. Substituting Pois any feation Qs = 5+ 2+ 38 = 5+9 = 24 kg Supp Price 38 t e \Demand Gurstity kg ₂) Quantity imported, Qem= 5+ 0.58 Q in 2012 produced in lodia, s=5+0.5p .: Qst Qsim = 5+0.580+5 to SP = 10 + 1P8 ... Total Supply function = 10+ 18o, as in 2011.

higher (i) when Rise imported, The total Supply becomes as in 2011 at 30% Po and Gokq oltis Less than price and output of Indian poodluces. Po=383 , a= 24ka so os price reduced, Consumer will be benefited by new policy as well as Quantity inoedse. But policy is against farmers. Because of doop in Price This is the reason. (ii) If Qs = 5+18 100-288=57P : SP-95, P = 382 If Qs = 572P8, 100-280 =57210, 95=480 Po=23.7 ? ; . Possible candidate is ,Qs = 5th Po Because equilibrium price is goca 2011 30% scates tha as in that case is, Q = 5 + 38 = 5+19=214 kg Also less than 2011 -