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1. The demand curve for wheat is given by Q = 1200 - 100P, and the...

1. The demand curve for wheat is given by Q = 1200 - 100P, and the supply curve for wheat is given by Q = 200P - 300; Q is measured in bushels of wheat, and P is the price per bushel.

a. Carefully graph this demand curve and supply curve in the same diagram.

b. Algebraically solve for the numerical value of the equilibrium price and quantity. Show in your diagram.

c. Assume that the government sets a “price floor” for wheat of $3.50/bu. In this market determine precisely what quantity of wheat will now be sold, and at what price it will sell? Is there a shortage or surplus at this price?

d. Assume that the government sets a “price ceiling” of $4/bu. In this market determine precisely what quantity of wheat will be sold, and at what price it will sell? Is there a shortage or surplus at this price? Determine the size of this shortage or surplus.

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