Question

1. (1 point for each question) The following figure illustrates hypothetical supply and demand functions assuming an economy with two user groups: farmers and non-farmers. Aggregate supply and demand represents the market supply and demand. (Recall: water is a rival good so the market supply and demand is the horicontal sum of each user groups' supply and demand.) Use the letters provided on the graph to answer each question. Non-agriculture Agriculture Total De Dn Water0 Water at Water

The last graph (right) illustrates aggregated supply and demand for water. (Now ag and non-ag can trade on the same market, hence, the market demand and supply will be the horizontal summation of the two user groups’ demand and supply.)

f) In equilibrium, how much water is demanded when society allows water trading? (Hint: look at the market demand and supply curves. Provide the letter indicating the equilibrium quantity.)

Answer 1

The letter indicating the equilibrium quantity in the market demand and supply curves is - Q*t