Supply and Demand and United States
CHAPTER 2
THE BASICS OF SUPPLY AND DEMAND
1. Consider a competitive market for which the quantities demanded and supplied (per year) at various prices are given as follows:
Price
($ ) Demand Supply (millions) (millions)
60 22 14
80 20 16
100 18 18
120 16 20
a. Calculate the price elasticity of demand when the price is $80. When the price is
$100.
b. Calculate the price elasticity of supply when the price is $80. When the price is$100.
c. What are the equilibrium price and quantity?
d. Suppose the government sets a price ceiling of $80. Will there be a shortage, and, if so, how large will it be?
2. Refer to Example 2.4 on the market for wheat. At the end of 1998, both Brazil and
Indonesia opened their wheat markets to U.S. farmers. (Source: http://www.fas.usda.gov/)
Suppose that these new markets add 200 million bushels to U.S. wheat demand. What will be the free market price of wheat and what quantity will be produced and sold by U.S. farmers in this case?
3. A vegetable fiber is traded in a competitive world market, and the world price is $9 per pound. Unlimited quantities are available for import into the United States at this price.
The U.S. domestic supply and demand for various price levels are shown below.
Price U.S. Supply U.S. Demand (million lbs.) (million lbs.)
3 2 34
6 4 28
9 6 22
12 8 16
15 10
THE BASICS OF SUPPLY AND DEMAND
1. Consider a competitive market for which the quantities demanded and supplied (per year) at various prices are given as follows:
Price
($ ) Demand Supply (millions) (millions)
60 22 14
80 20 16
100 18 18
120 16 20
a. Calculate the price elasticity of demand when the price is $80. When the price is
$100.
b. Calculate the price elasticity of supply when the price is $80. When the price is$100.
c. What are the equilibrium price and quantity?
d. Suppose the government sets a price ceiling of $80. Will there be a shortage, and, if so, how large will it be?
2. Refer to Example 2.4 on the market for wheat. At the end of 1998, both Brazil and
Indonesia opened their wheat markets to U.S. farmers. (Source: http://www.fas.usda.gov/)
Suppose that these new markets add 200 million bushels to U.S. wheat demand. What will be the free market price of wheat and what quantity will be produced and sold by U.S. farmers in this case?
3. A vegetable fiber is traded in a competitive world market, and the world price is $9 per pound. Unlimited quantities are available for import into the United States at this price.
The U.S. domestic supply and demand for various price levels are shown below.
Price U.S. Supply U.S. Demand (million lbs.) (million lbs.)
3 2 34
6 4 28
9 6 22
12 8 16
15 10