markets5a - Additional Problem #5 : Market Analysis (Answer...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Additional Problem #5 : Market Analysis (Answer Key) 1. Suppose the total demand for wheat and the total supply of wheat per month in the Kansas City grain market are as follows: Thousands of bushels demanded Price per bushel Thousands of bushels supplied Surplus (+) or shortage (-) 85 $4.60 72 -13 80 4.80 73 -7 75 5.00 75 0 70 5.20 77 7 65 5.40 79 14 60 5.60 81 21 (a) What will be the market or equilibrium price? What is the market or equilibrium quantity? Using the surplus-shortage column, explain why your answers are correct. P E = $5.00 Q E = Q D = Q S = 75 At prices below $5.00 Q D > Q S Shortage At prices above $5.00 Q S > Q D Surplus (b) Using the above data, graph the demand for wheat and the supply of wheat. Be sure to label the axes of your graph correctly. Label equilibrium price P E and equilibrium quantity Q E . P S Surplus (c) P Floor = $5.40 P E = $5.00 Shortage (d) P Ceiling = $4.80 D 0 Q E = 75 Q (c) Why will $4.60 not be the equilibrium price in the market? Why not $5.60? Surpluses drive prices up; shortages drive them down. Do you agree? At P = $4.60 Q D > Q S P increases P = $5.60 Q S > Q D P decreases Surpluses drive prices down, shortages drive prices up....
View Full Document

This note was uploaded on 10/26/2009 for the course ECON 180-004-20 taught by Professor Bresnock during the Fall '09 term at UCLA.

Page1 / 4

markets5a - Additional Problem #5 : Market Analysis (Answer...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online