Q: If we examine the market for rice in US during the year2007 and 2009, the dem
ID: 1239467 • Letter: Q
Question
Q: If we examine the market for rice in US during the year2007 and 2009, the demand of rice was higher in the year 2007 but it felldown during the year 2009, due to the drop in the export demand of rice. Butthe Government wants to keep the price of rice at higherlevel. The given equations show the quantity demanded and quantitysupplied of rice during the year 2007. Year 2007: Demand: Qd = 1,600 - 125P Year 2007 Supply: Qs = 440 + 165Pa. Calculate the market clearing price level and quantity inthe year 2007, in that year there were no effective limitations onthe production of rice. b. Why the government wants to keep the price at higher leveli.e. to $5.50 when there is decline in export demand. Will it effecton the quantity demanded or quantity supplied equation and curve andhow much? c. Now with the help of new quantity equation calculate whatshould be the quantity of rice which the government must buy? Q: If we examine the market for rice in US during the year2007 and 2009, the demand of rice was higher in the year 2007 but it felldown during the year 2009, due to the drop in the export demand of rice. Butthe Government wants to keep the price of rice at higherlevel. The given equations show the quantity demanded and quantitysupplied of rice during the year 2007. Year 2007: Demand: Qd = 1,600 - 125P Year 2007 Supply: Qs = 440 + 165P
a. Calculate the market clearing price level and quantity inthe year 2007, in that year there were no effective limitations onthe production of rice. b. Why the government wants to keep the price at higher leveli.e. to $5.50 when there is decline in export demand. Will it effecton the quantity demanded or quantity supplied equation and curve andhow much? c. Now with the help of new quantity equation calculate whatshould be the quantity of rice which the government must buy? a. Calculate the market clearing price level and quantity inthe year 2007, in that year there were no effective limitations onthe production of rice. b. Why the government wants to keep the price at higher leveli.e. to $5.50 when there is decline in export demand. Will it effecton the quantity demanded or quantity supplied equation and curve andhow much? c. Now with the help of new quantity equation calculate whatshould be the quantity of rice which the government must buy?
Explanation / Answer
For part a: market clearing price is basically the equilibriumprice. This means, in order for the market to be at equilibrium,you must equate the Qd equation with the Qs equation. 1600-125P=440+165P, and then solve for P. 1160=290P P=4 Then, taking P=4, you can substitute it into either equation, Qd orQs, to obtain the quantity.
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