D1 = 14000 – 10*P1
Where D1 is demand for spring wheat in this first period, and P1 is the price of spring wheat in the first period. Demand for spring wheat in the second period is given by:
D2 = 8000 – 6*P2.
Where D2 is demand for and P2 is the price of spring wheat in the second period. Storage costs between the two periods equals $20 per tonne.
Supply of spring wheat= 18000 tonnes
Demand in period 1, D1=14000-10*P1
Demand in period 2, D2=8000-6P2
Storage cost=$20 per tonne.
In equilibrium, there should be neither excess demand, nor excess supply. Prices should be such that the demanded quantity in both the periods is exactly equal to the total supply of wheat available
Thus S=D1+D2 in equilibrium.
Whatever is not demanded in period 1 is stored for the sale in period 2, thus the total storage cost= $20(S-D1)
In second period, in order to attain the equilibrium, demand in period 2 has to be equal to supply for period 2.
Hence equilibrium price in period 2 in terms of prices in period 1 is given by above expression
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