equilibrium price of corn? How will it change the amount of corn that is bought and sold? Answer: Consider the following demand and supply functions for corn: Demand is given by: = 15 2Pcorn Qdcorn – Supply is given by: = 5Pcorn 6 QScorn – where is the price in dollars and is the quantity in billions of bushels. Suppose the P Q government needs to buy 3.5 billion bushels of corn for a third-world famine relief program. The equilibrium price of corn the government purchase is $3. The equilibrium before price of corn the government purchase is $3.50. after Explanation: To find the equilibrium price before the government purchase we set supply equal to demand: QScorn = Qdcorn 5Pcorn 6 = 15 2Pcorn – – 7Pcorn = 21 = 3 Pcorn The effect of the government purchase will be to reduce the available quantity supplied by 3.5 billion bushels. Therefore, the new supply function is by: = 5Pcorn 6 3.5 QScorn – – Demand is given by: = 15 2Pcorn Qdcorn – At equilibrium 5Pcorn 6 3.5 = 15 2Pcorn – – – Equilibrium price equals $3.50, and equilibrium quantity equals 8.0 billion bushels plus 3.5 billion bushels purchased by the government. Alternatively, the government purchase of 3.5 billion bushels of corn can be seen as an outward shift in demand by 3.5. This will result in a new demand function: Qd = 18.5 – 2P. Note that the new equilibrium price and quantity will still be $3.50 per bushel and 11.5 billion bushels of corn including the 3.5 billion bushels purchased by the government.
equilibrium price of corn? How will it change the amount of corn that is bought and sold? Answer: Consider the following demand and supply functions for corn: Demand is given by: Qdcorn = 15 – 2Pcorn Supply is given by: QScorn = 5Pcorn – 6 where P is the price in dollars and Q is the quantity in billions of bushels. Suppose the government needs to buy 3.5 billion bushels of corn for a third-world famine relief program. The equilibrium price of corn before the government purchase is $3. The equilibrium price of corn after the government purchase is $3.50. Explanation: To find the equilibrium price before the government purchase we set supply equal to demand: QScorn = Qdcorn 5Pcorn – 6 = 15 – 2Pcorn 7Pcorn = 21 Pcorn = 3 The effect of the government purchase will be to reduce the available quantity supplied by 3.5 billion bushels. Therefore, the new supply function is by: QScorn = 5Pcorn – 6 – 3.5 Demand is given by: Qdcorn = 15 – 2Pcorn At equilibrium 5Pcorn – 6 – 3.5 = 15 – 2Pcorn Equilibrium price equals $3.50, and equilibrium quantity equals 8.0 billion bushels plus 3.5 billion bushels purchased by the government. Alternatively, the government purchase of 3.5 billion bushels of corn can be seen as an outward shift in demand by 3.5. This will result in a new demand function: Qd = 18.5 – 2P. Note that the new equilibrium price and quantity will still be $3.50 per bushel and 11.5 billion bushels of corn including the 3.5 billion bushels purchased by the government.
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