In the central United States, farm ground is devoted to corn and beans as far as the eye can see. The supply of beans (in millions of bushels) is given by Qbs = 2Pb - Pc. The supply of corn is given by Qcs = 2Pc - Pb. Let the demand for beans be given by Qbd = 30 - Pb, and the demand for corn be given by Qcd = 30 - Pc.
a. Solve the general equilibrium price and quantity of both beans and corn. (Hint: If you have trouble with this step, follow the procedures outlined in Problem 3.)
b. Suppose there is a shock to bean demand, so that the quantity demanded at each price increases by 8 million bushels. The new demand for beans can be written as Qbd = 38 - Pb. Solve for the new general equilibrium price and quantity of beans and corn.
c. What happens to the price of beans and the quantity sold as a result of the demand increase?
d. What happens to the price of corn and quantity sold as a result of the increase in the demand for beans? Explain.