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Chapter 2: Q8 (page 78)
Does a price ceiling change the equilibrium price?
no change in equilibrium price. the eqilibrium shifts to right due to change in demand.
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A vegetable fiber is traded in a competitive world market, and the world price is \(9 per pound. Unlimited quantities are available for import into the United States at this price. The U.S. domestic supply and demand for various price levels are shown as follows:
| PRICE | U.S. SUPPLY (MILLIONS) | U.S. (DEMAND) (MILLIONS) |
| 3 | 2 | 34 |
| 6 | 4 | 28 |
| 9 | 6 | 22 |
| 12 | 8 | 16 |
| 15 | 10 | 10 |
| 18 | 12 | 4 |
What is the equation for demand? What is the equation for supply?
At a price of \)9, what is the price elasticity of demand? What is it at a price of \(12?
What is the price elasticity of supply at \)9? At $12?
In a free market, what will be the U.S. price and level of fiber imports?
Refer to Example 2.10 (page 81), which analyzes the effects of price controls on natural gas.
Using the data in the example, show that the following supply and demand curves describe the market for natural gas in 2005–2007:
Supply: Q = 15.90 + 0.72PG+ 0.05PO
Demand: Q = 0.02 - 1.8PG+ 0.69PO
Also, verify that if the price of oil is \(50, these curves imply a free-market price of \)6.40 for natural gas.
Suppose the regulated price of gas was \(4.50 per thousand cubic feet instead of \)3.00. How much excess demand would there have been?
Suppose that the market for natural gas remained unregulated. If the price of oil had increased from \(50 to \)100, what would have happened to the free market price of natural gas?
Example 2.9 (page 76) analyzes the world oil market. Using the data given in that example:
a. Show that the short-run demand and competitive supply curves are indeed given by
D = 36.75 - 0.035P
SC= 21.85 + 0.023P
b. Show that the long-run demand and competitive supply curves are indeed given by
D = 45.5 - 0.210P
SC= 16.1 + 0.138P
c. In Example 2.9 we examined the impact on price of a disruption of oil from Saudi Arabia. Suppose that instead of a decline in supply, OPEC production increases by 2 billion barrels per year (bb/yr) because the Saudis open large new oil fields. Calculate the effect of this increase in production on the price of oil in both the short run and the long run.
Refer to Example 2.5 (page 59) on the market for wheat. In 1998, the total demand for U.S. wheat was Q = 3244 - 283P and the domestic supply was QS = 1944 + 207P. At the end of 1998, both Brazil and Indonesia opened their wheat markets to U.Sfarmers. Suppose that these new markets add 200 million bushels to U.S. wheat demand. What will be the free-market price of wheat and what quantity will be produced and sold by U.S. farmers?
Much of the demand for U.S. agricultural output has come from other countries. In 1998, the total demand for wheat was Q = 3244 - 283P. Of this, total domestic demand was QD = 1700 - 107P, and domestic supply was QS = 1944 + 207P. Suppose the export demand for wheat falls by 40 percent.
U.S. farmers are concerned about this drop in export demand. What happens to the free-market price of wheat in the United States? Do farmers have much reason to worry?
Now suppose the U.S. government wants to buy enough wheat to raise the price to $3.50 per bushel. With the drop in export demand, how much wheat would the government have to buy? How much would this cost the government?
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