Question

Assume the US market of sunflower oil was described by the following domestic supply and demand equations:

QDUS = 8000 – 4 P

QSUS = -2000 + 6 P

where QDUS and QSUS represent the quantities demanded and supplied (in tons) and P is the price per ton of sunflower oil (in $).

4) Now add this information:

In 2008, China entered into the World Trade Organization and became the largest importer of US sunflower oil. Assume the Chinese import demand for sunflower oil from the US in 2008 was

QDCHINA = 20000 – 10 P

1) What was the market (equilibrium) price of sunflower oil?

2) Using your work in question 1, what was the market (equilibrium) quantity of sunflower oil?

3) Using your work in questions 1 and 2, what were revenues for the suppliers of sunflower oil?

4) Given this information, what was the new equilibrium price of sunflower oil in 2008? (Hint: what is the total demand for US sunflower oil?)

5) Given the price you calculated in the previous question, what was the equilibrium total quantity demanded?

6) Given your answers in the previous 2 questions, how much of the new equilibrium quantity was consumed in the US (i.e., US quantity demanded given the new equilibrium price)?

7) Given your answers in the previous three questions, how much sunflower oil did China purchase from US producers? (i.e., China quantity demanded)

8) Given your calculations in questions # 4 and #5, what were US sunflower oil producer revenues?

*only need help with the bolded questions

Answer 1

Ans - 5) New equilibrium Price = $1500 [ reached by equating total demand TO SUPPLY i.e. 8000 - 4P + 20,000 - 10P = -2000 + 6P ]

Equilibrium Total Quantity demanded at new price = 1500

total demand = 8000 - 4P + 20,000 - 10P

= 8,000 - 4 (1500) + 20,000 - 10(1500)

= 8000 - 6000 + 20,000- 15,000

= 28,000 - 21,000

= 7,000

NEW EQUILIBRIUM QUANTITY DEMANDED = 7,000 tons

Ans-6) New equilibrium quantity consumed in U.S. can be calculated by substituting the new price in QDUS equation -:

QDUS = 8000 - 4P

= 8000 - 4(1500)

= 8000 - 6000

= 2000

NEW EQUILIBRIUM QUANTITY CONSUMED IN U.S GIVEN NEW PRICE = 2000 TONS.

Ans-7) China's purchase can be calculated bu QDCHINA at price = 1500

QDCHINA = 20,000 - 10P

= 20,000 - 10(1500)

= 20,000 - 15,000

= 5000

QUANTITY PURCHASED BY CHINA = 5000 TONS.

Ans-8) U.S. sunflower producer revenues can be calculated by substituting the new price = 1500 in QSUS equation.

QSUS = -2000 + 6P

= - 2000 + 6 (1500)
= -2000 + 9000

= 7000 TONS

Revenue = QSUS (New Price)

= 7000 (1500)

= $10,500,000