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(Solved) Suppose the total demand for wheat and the total supply of wheat per month in the Kansas City grain market are as follows: Thousands of bushels

Question: Suppose the total demand for wheat and the total supply of wheat per month in the Kansas City grain market are as follows:

Thousands
of bushels
demanded 		Price
per
bushel 		Thousand
of bushels
supplied 		Surplus (+)
or
shortage (-)
85
80
75
70
65
60 		$3.40
3.70
4.00
4.30
4.60
4.90 		72
73
75
77
79
81 		__-7__
__-7__
___ 0 ___
___7___
__14__
__21___
  1. What will be the market or equilibrium price? What is the equilibrium quantity? Using the surplus-shortage column, explain why your answers are correct.

b. Graph the demand for wheat and the supply of wheat. Be sure to label the axes of your graph correctly. Label equilibrium price "P" and the equilibrium quantity "Q."

c. Why will $3.40 not be the equilibrium price in this market? Why not $4.90? "Surpluses drive prices up; shortages drive them down." Do you agree?

d. Now suppose that the government establishes a ceiling price of, say, $3.70 for wheat. Explain carefully the effects of this ceiling price. Demonstrate your answer graphically. What might prompt the government to establish a ceiling price?

Price: $2.99
Solution: The downloadable solution consists of 3 pages
Deliverable: Word Document


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