Question

1. Blackberries are a product of the Southern Growers’ Association. Producers in the area can switch back and forth between blackberry and raspberry production, depending on market conditions. Similarly, consumers tend to regard blackberries and raspberries as substitutes. As a result, the demand and supply of Blackberries is highly sensitive to changes in both blackberry and raspberry prices. Demand and supply functions for blackberries are as follows:

  

QD = -1450 - 25P + 12.5PR + .001Y                                   (Demand)             

Q_S = -100 + 6P - 25PR - .185PL +10R                       (Supply)

where P is the average wholesale price of Blackberries ($ per bushel), PR is the average wholesale price of raspberries ($ per bushel), Y is income (GDP in $ billions), PL is the average price of unskilled labor ($ per hour), and R is the average annual rainfall (in inches). Both Q_D and Q_S are in millions of bushels of Blackberries.

1. When quantity is expressed as a function of price, what are the Blackberry demand and supply curves if PR = $4, Y = $15,000 billion, PL = $12, and R = 20 inches?
2. Calculate the surplus or shortage Blackberries when P = $231.50, $241.00, and $262.50.
3. Calculate the market equilibrium price-output combination.
4. Assume that the price of labor goes up to $10.00 /hr. and that national income increases by $1.500 billions. What is the new equilibrium price and quantity for Blackberries?

Answer 1