A. If we examine themarket for rice in Pakistan during the year 2007 and2009, th

Question

A. If we examine themarket for rice in Pakistan during the year 2007 and2009,

the demand of rice washigher in the year 2007 but it fell down duringthe

year 2009, due to thedrop in the export demand of rice. But the

Government wants to keepthe price of rice at higher level.

The given equations showthe quantity demanded and quantity supplied of

rice during the year2007.

Year 2007: Demand:Qd = 1,600 -125P

Year 2007 Supply:Qs = 440 +165P

a. Calculate the marketclearing price level and quantity in the year

2007, in that year therewere no effective limitations on the

production ofrice.

b. Why the governmentwants to keep the price at higher level i.e. to

$5.50 when there isdecline in export demand. Will it effect on the

quantity demanded orquantity supplied equation and curve and how

much?

c. Now with the help ofnew quantity equation calculate what should be

the quantity of ricewhich the government must buy?

and is charging a priceof $70 per unit.

If the marginal cost oflast unit produced is 50 what will be the elasticityof

demand for theproduct?

Explanation / Answer

b). If the Govt raises the price of rice from $4.00 to $5.50,quantity demanded will go down by 187.5 you just get that byplugging 4 in for P for Qd and 5.5 in for P in Qd and take thedifference. You can do the same for Qs...
c)Plug 5.5 in for P in Qd. = 912.5
B) http://economics.about.com/cs/micfrohelp/a/priceelasticity.htm
follow those directions.

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