Assignment 2 Solution - Name Food Resource Economics 3103...

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Name___________________________ Due date: 09/22/10 Food & Resource Economics 3103 Solutions for 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. Be careful as to how you define the ranges of the curves. To do that you simply have to substitute P w =0 so as to find the respective Q sw and Q dw
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