The simple equations in the first problem ignore the effects of variables other than the price...
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The simple equations in the first problem ignore the effects of variables other than the price on supply and demand. More complete represen- tations of supply and demand curves might include additional variables other than just the price. Suppose that the supply of wheat depends on the price of wheat (p) and the amount of rainfall (r). The demand for wheat depends on the price of wheat and the level of disposable income (I). The equations describing the supply and demand relationships are: Qs = 20r + 100p QD=4000-100p+101 (a) Sketch a graph of demand and supply curves that shows the effect of an increase in rainfall. How does each of the curves shift (if at all) from the increase? What is the effect on equilibrium price and quantity? (b) Sketch a graph of demand and supply curves that shows the effect of an increase in disposable income. How does each of the curves shift (if at all) from the increase? What is the effect on equilibrium price and quantity? (c) Now you are to confirm your graphs with algebra. Solve the supply and demand equations for the equilibrium price and quantity, Q* and p" as a function of the exogenous variables I and r. (d) Explain how the variables I and r affect the equilibrium price accord- ing to your answers to (c). Does it conform to the graphical analysis in part (a)? The simple equations in the first problem ignore the effects of variables other than the price on supply and demand. More complete represen- tations of supply and demand curves might include additional variables other than just the price. Suppose that the supply of wheat depends on the price of wheat (p) and the amount of rainfall (r). The demand for wheat depends on the price of wheat and the level of disposable income (I). The equations describing the supply and demand relationships are: Qs = 20r + 100p QD=4000-100p+101 (a) Sketch a graph of demand and supply curves that shows the effect of an increase in rainfall. How does each of the curves shift (if at all) from the increase? What is the effect on equilibrium price and quantity? (b) Sketch a graph of demand and supply curves that shows the effect of an increase in disposable income. How does each of the curves shift (if at all) from the increase? What is the effect on equilibrium price and quantity? (c) Now you are to confirm your graphs with algebra. Solve the supply and demand equations for the equilibrium price and quantity, Q* and p" as a function of the exogenous variables I and r. (d) Explain how the variables I and r affect the equilibrium price accord- ing to your answers to (c). Does it conform to the graphical analysis in part (a)?
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a Rainfall only affects the supply curve of wheat and not the demand curve as the rainfall component ... View the full answer
Related Book For
Macroeconomics Principles and Applications
ISBN: 978-1133265238
5th edition
Authors: Robert e. hall, marc Lieberman
Posted Date:
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