Question

Assume you have the following information for the global market for agricultural commodity X. For each scenario, use demand and supply analysis to provide a likely explanation for the change in market equilibrium. The prices are per bushel and the quantities are millions of bushels.

Scenario	August 2018	August 2019
A	P* = $142 Q* = 315	P* = $180 Q* = 315
B	P* = $142 Q* = 315	P* = $128 Q* = 360
C	P* = $142 Q* = 315	P* = $135 Q* = 275
D	P* = $142 Q* = 315	P* = $142 Q* = 400

Answer 1

Ans : The cases are as follows-:

Case A : August 2018 August 2019

P* = 142 , Q* = 315 P* = 180 , Q*= 315 .

Now here the price has increased but the quantity is still the same . This means there is change in both demand and supply curves . The case can be illustrated in the following figure -:

In the figure , initial equilibrium of August 2018 is at E where price = 142 and quantity = 315. However there is an increase in demand to D1 and decrease in Supply to S1. The combined effect pulls up the price to 180 but the quantity is same = 315 as the increase in demand is offset by equal decrease in supply. The new equilibrium for August 2019 is at E1.

Case B -: Old Price = $142

Old Qunatity = 315

New Price = $128

New quantity = 360

In the figure , there is an increase in supply from S to S1. This increase in supply increases the quantity to 360 million bushels from 315 million bushels. The increased supply decreases the price from $142 to $128 . There is extension along the demand curve from E to E1.

Case -C: Old Price = 142

Old Quantity = 315

New Price = 135

New Quantity = 275

In the figure , There is fall in price to $135 and fall in quantity to 275 million bushels owing to decrease in Demand from D to D1 and contraction along the supply curve from E to E1.

Case D : Old Price = 142

Old Quantity = 315

New Price = 142

New Quantity = 400

In the figure , there is increase in demand from D to D1 which increases the equilibrium price but a susbequent increase in Supply brings down the price to initial level of $142 . The quantity however increases by both increase in demand and supply to 400 millions of bushels.