Question

Refer to Example 2.5 on the market for wheat. In​ 1998, the total demand for U.S....

Refer to Example 2.5

on the market for wheat. In​ 1998, the total demand for U.S. wheat was

QD=3,244−283P

and the domestic supply was

QS=1,944+207P.

At the end of​ 1998, both Brazil and Indonesia opened their wheat markets to U.S. farmers. Suppose that these new markets add

250 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?

The​ free-market price of wheat will be $ ___ per bushel.

​(Enter your response rounded to two decimal places.​)

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Answer #1

The​ free-market price of wheat will be $1.77 per bushel.

what quantity will be produced and sold by U.S.​ farmers --- 2310.39 million bushels.

calcuation: Equilibrium price and quantity are where Demand = Supply
3244 - 283P = 1944 + 207P
So, P = $2.65; Q = 3244 - (283 * 2.65) = 2493.18 million bushels

If 250 million bushels are added to the demand, then
demand = 2743.18 (2493.18+250 = 2743.18)
Then, according to Demand function, 2743.18 = 3244 - 283P
So, P = 1.77.

US producers will produce (supply function): 1944 + (207*1.77) = 2310.39 millin bushels.

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