2.3 What is the equilibrium price for the demand and supply conditions described in Problems 1 and 2? How much corn is bought and sold? What if the price of diesel fuel increases to $4.50 per gallon? Show the equilibrium price before and after the change in a graph. Answer: The demand for corn (measured in billions of bushels) is given by: The supply of corn is given by: The equilibrium price for the demand and supply conditions described in Problems 1 and 2 is $4.00. 11 billion bushels of corn is bought and sold. If the price of diesel fuel increases to $4.50 per gallon, the price of corn will increase to $4.50. Explanation: At equilibrium = Qs Qd. 9 + 5Pcorn 2Pfuel 1.25Psoybeans = 5 2Pcorn + 4Ppotatoes 0.25Pbutter + – – – – 0.0003M 9 + 5Pcorn 5.5 12.50 = 5 2Pcorn + 3 1 + 12 – – – – = –28 –7Pcorn = $4.00 Pcorn By inserting the new price into either the quantity demanded or quantity supplied equation, we can see how much corn is bought and sold. When the price is set by the market, the quantity of corn bought and sold is 11 billion bushels. = 9 + 5($4.00) 2($2.75) 1.25($10) QScorn – – = 11 QScorn If fuel prices increase to $4.50 per gallon, the price of corn will rise to $4.50 and less will be produced. 9 + 5Pcorn 9.00 12.50 = 5 2Pcorn + 3 1 + 12 – – – – = –31.50 –7Pcorn Pcorn =$4.50 = 9 + 5($4.50) 2($4.50) 1.25($10) QScorn – – = 10 QScorn
2.3 What is the equilibrium price for the demand and supply conditions described in Problems 1 and 2? How much corn is bought and sold? What if the price of diesel fuel increases to $4.50 per gallon? Show the equilibrium price before and after the change in a graph. Answer: The demand for corn (measured in billions of bushels) is given by: The supply of corn is given by: The equilibrium price for the demand and supply conditions described in Problems 1 and 2 is $4.00. 11 billion bushels of corn is bought and sold. If the price of diesel fuel increases to $4.50 per gallon, the price of corn will increase to $4.50. Explanation: At equilibrium Qs = Qd. 9 + 5Pcorn – 2Pfuel – 1.25Psoybeans = 5 – 2Pcorn + 4Ppotatoes – 0.25Pbutter + 0.0003M 9 + 5Pcorn – 5.5 – 12.50 = 5 – 2Pcorn + 3 – 1 + 12 –28 = –7Pcorn Pcorn = $4.00 By inserting the new price into either the quantity demanded or quantity supplied equation, we can see how much corn is bought and sold. When the price is set by the market, the quantity of corn bought and sold is 11 billion bushels. QScorn = 9 + 5($4.00) – 2($2.75) – 1.25($10) QScorn = 11 If fuel prices increase to $4.50 per gallon, the price of corn will rise to $4.50 and less will be produced. 9 + 5Pcorn – 9.00 – 12.50 = 5 – 2Pcorn + 3 – 1 + 12 –31.50 = –7Pcorn Pcorn =$4.50 QScorn = 9 + 5($4.50) – 2($4.50) – 1.25($10) QScorn = 10
Solution-Manual-for-Microeconomics-2nd-Edition-by-Bernheim.docx