Assignment 2 - Show your work in the space provided below....

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Name___________________________ Due date: 09/22/10 Assignment #2 MARKET EQUILIBRIUM In this exercise we are going to explore the equilibrium of a simple market in isolation— that is, we assume that prices and conditions in other markets do not influence this market (that is, we are looking at a single market for wheat, ceteris paribus ). By definition, in equilibrium the quantity supplied (Q s ) is equal to the quantity demanded (Q d ). The supply function of wheat (S w ) and the demand function of wheat (D w ) are both linear with respect to the price of wheat (P w ) as defined below: S w : Q sw = 12 + 2*P w D w : Q dw = 60 – 4*P w 1. Graph the relevant ranges of S w and D w . The relevant ranges are those values for which P w ≥ 0 and Q w ≥ 0. Label the curves S and D. Indicate the areas where we have shortage or surplus and point the equilibrium. 2. Use simple algebra to find the equilibrium price and equilibrium quantity traded.
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Unformatted text preview: Show your work in the space provided below. Answer: Equilibrium price = Equilibrium quantity = 3. At the equilibrium price, the quantity demanded is equal to the quantity supplied. At any other price (called a disequilibrium price) there is either a shortage or surplus. Calculate the amount of the shortage at a price of $5.30. Show your work below: Answer: Amount of shortage 4. Now assume that the demand curve shifts, ceteris paribus , such that D w : Q dw = 80 4*P w Plot this shifted demand curve on your graph and label it as D*. What may have cause the shift in the demand function? 5. Use simple algebra to find the equilibrium price and quantity after this demand shift. Show your work below: Answer: Equilibrium price = Equilibrium quantity =...
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This note was uploaded on 02/10/2011 for the course AEB 3103 taught by Professor Cazanova during the Fall '08 term at University of Florida.

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Assignment 2 - Show your work in the space provided below....

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