Question

Consider the following market for a crop: Demand: QD = a - bP = 18 -...

Consider the following market for a crop:

Demand: QD = a - bP = 18 - 0.5P

Supply: QS = c+dP = -2 + 0.5P

[Insert an image of your graph here]

1. What is the equilibrium price and quantity?

2. What is the elasticity of demand at the equilibrium? What is the elasticity of supply at the equilibrium?

3. What is the total revenue (price times quantity) of suppliers at the equilibrium?

4. Suppose that the crop is larger and supply is now QS = 4 + 0.5P Add the new curve to your graph. What is the new equalibrium price and quantity?

5. What is the total revenue of suppliers at the new equilibrium?

6. What is the elasticity of demand at the new equilibrium?

7. Is demand elastic or inelastic at the two points? What does this mean for farmers when the crop is larger?

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