Question

Demand function: P = 7 – 2Q Supply function: P = 4 + Q Where P is the farm price in $/bushel and Q is quantity in billions (1,000,000,000s) of bushels sold. 1. a. Graph the Demand and Supply curves for wheat and find the equilibrium price and quantity of wheat sold in this competitive market. You can solve graphically or algebraically as two equations with two unknowns. Show your calculations.

Answer 1

a.

Please find the attached graph.

Now, to determine the equilibrium price and quantity we need to equate demand and supply function.

For that we need to rearrange the demand and supply equation.

P = 7 - 2Q

Q = 3.5 - 0.5P

P = 4 + Q

Q = P - 4

So, 3.5 - 0.5P = P - 4

1.5P = 7.5

P = 5.

Now if we put P = 5 in either the demand or supply function we will get equilibrium quantity.

5 = 7 - 2Q

Q = 1

So, the equilibrium quantity sold is 1 billion and the equilibrium price is $5 per bushel.