Much of the demand for Canadian agricultural output has come from other countrie

Question

Much of the demand for Canadian agricultural output has come from other countries. Suppose, in 2014, the total demand for Canadian wheat was QD = 3244 - 283p, where price is measured in dollars per bushel and quantities in millions of bushels per year. Of those, the demand of Canadian consumers was QDCND = 1244 - 83p. The supply of Canadian wheat in 2014 was QS = 1872 + 207p.

a) Compute the equilibrium price of Canadian wheat in 2014. What was the total revenue of Canadian wheat farmers?

Suppose the export demand for Canadian wheat expects to fall by 20% in 2015. On the other hand, the 2015's demand of Canadian consumers and the supply of Canadian wheat remain the same as the 2014's.

b) By how much do you expect the total revenue of the wheat farmers fall this year? (Hint: To find the export demand for wheat, you subtract the demand of Canadian consumers QDCND from the total demand QD.

c) Suppose now the Canadian government wants to buy enough wheat to raise the price to the 2014 level. How much wheat would the government have to buy? How much would this cost the government?

Explanation / Answer

QS = 1872+207p

Now we will equate QS=QD for the equilibrium

3244-283p = 1872+207p

1372 = 490p so p = 2.8

Revenue for Canadian farmers is

1872+207p = 1872+207(2.8)=1872+579.6= 2451.6

(3244-283p)-(1244-83p)=2000-366p

Putting p=2.8 we get 975.2.

It has been mentioned that the fall is expected of 20% in this demand so

975.2 x 0.2=195.04

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