Question

1.Before there were charitable trusts in england, it was a common practice for the rich to buy all available grain in years of bad (low) harvest, and then sell it back to the poor at half price. the poor were allowed to buy as much as they wanted at this reduced price. for this question, let's assume that three things are true: the poor are the only ones who consume grain, they end up buying as much as they want at the reduced price, and that the reduced price is half what the rich paid for the grain.

a. In a graph, draw the poor's demand for grain, an initial (vertical) supply curve, and a new (vertical) supply curve for the reduced crop. show the reduced bad crop equilibrium price assuming there is no interference by the charitable rich.

b. With a new graph, now assume the charitable rich enter the market. represent this as an increase in demand. show the new price, and the price the poor now pay. assume it is still a low crop.

c. Are the poor or anyone else helped by this scheme? briefly explain.

2. Suppose you recently made a confection which called for one cup of buttermilk. The smallest container of buttermilk you could find was one pint (two cups). Having made it, you have one cup of buttermilk left. You do not like to drink buttermilk, but there is another dessert you could make which woulf use up your remaining cup. Suppose the pint of buttermilk originally cost 50 cents and the other ingredients for the dessert cost $2.50. The value you place on the dessert is $2.70. Should you make the dessert? Why?

Answer 1

​​​​​Answer 1a :-

Awat hely רתכן יה - איי

In the above graph the supply curve is vertical and is constant at quantity Q because the quantity of the the crops is constant and does not change with the change in price. There is a limited quantity of Crop available in the market due to bad harvest and thus the supply curve will always remain vertical irrespective of the change in demand due to increase or decrease in and prices . The rich have purchased the the crop and price P1 and their demand curve is represented by D1 forming an equilibrium at point a a. as a part of their Charity they crops to the poor at price P2 that leads to the shift in demand curve from D1 to D2 to form a new equilibrium at point B.

Answer 1b :-

Price Quando

When the rich enters the market they have a capacity to pay higher prices than the poor there by leading to shift in the price from P2 to P3 which leads to to shift in the demand curve from D2 to D3 and forming a new equilibrium point at C .it must be noted that due to entrance of rich people in the market the prices of the crop have rose sharply due to Limited supply of the crop

Answer 1c :-

Under the first scheme where the rich people are selling their purchased crop at half prices to the poor, the only beneficiary are the poor who you are able to satisfy their demand at at low prices which needs there budget constraint however as soon as the rich enters the market the major chunk of sufferers are the poor themselves as the people who are willing to pay higher prices will get the crop and the poor who unable to pay higher prices will only be able to survive on the left out crops.

Answer 2 :-

If 1 pint of Milk is equal to 50 cents .

1 Pint = 2 cups of milk.

1 cup of milk = 50/2=25 cents

The total cost of preparation of desserts = 2.50+0.25 = 2.75 cents

The total revenue derived from preparation of dessert = $2.70

The cost of preparation of desert is exceeding the total revenue gain from the sale of desert by five cents. Therefore it is not a good choice to prepare just dessert as it will lead to a loss of five cents.

IMPORTANT NOTE :-

If the cup of buttermilk will get completely wasted if not used for preparation of desserts , then in such case it will be better to prepare the desert as not preparing the desert will cost 25 cents loss while preparation of desert will cost only five cents of loss .To reduce the loss, preparation of desert would be a better option.