Question

supply and demand proplems

clearly identify the shock, draw graphs and label fully (indicate mkt), summarize impact on Pe and Qe

1- our policy on sugar has made it more profitable to be a sugar cane /beet farmer. suppose growers of soybean can easily switch to sugar. show how both the soybean and sugar markets are affected.

2- instability in the Middle East is decreasing oil production. Americans are warned that they will feel the effect of this at the gas pumps in a week or two. illustrate the impact on both oil and the current market for gas.

Answer 1

1. clearly supply of sugar will rise and supply of soyabean will fall. Due to increase in supply of sugar , it will create excess supply ,keeping dd unchnaged pushing prices down and qty up.

In soya market , fall in supply will create shortage keeping dd unchanged ,pushing prices up and qty down.

2.Demand for gas will increase today , pushing dd curve to right .(supply is still same today).It will lead to excess demand , increase in prices and fall in output.

In oil market , supply is decreasing and will shift the supply curve to left .At the same time , demand for oil also increases due to future instability.