Question

A market for rice is composed of 30 producers and 30 consumers.

Consumers’ side: All consumers are identical (have identical demand). Each consumer is willing to buy 10 kg of rice at a price of $1 per kg.

Producers’ side: 10 of the 30 producers are willing to sell 8 kg of rice at a price of $1per kg. The remaining 20 producers (of the total 30) are willing to sell 11 kg of rice at a price of $1 per kg.

Complete the following paragraph. Partial credit is allowed too.

At a price of $1 per kg of rice, the quantity demanded in the market for rice is                            [ Select ]                       ["300", "30", "10", "1"]         kg of rice and the quantity supplied in the market for rice is                            [ Select ]                       ["300", "30", "10", "20"]         kg of rice. Therefore, at a price of $1 per kg of rice the market is at                            [ Select ]                       ["a shortage", "equilibrium", "a surplus"]      

Answer 1

Demand side - total consumers = 30, Since all consumers are identical and each buys 10 kg of rice at $1 per kg then 30 conusmers will be 30*10 = 300kg of rice at $1/kg

Supply side - total seller = 30 - two categories of seller are there :- 10 producer sell 8kg of rice at $1/kg. So total supply from the 10 producers = 10*8 = 80 kg. While the second category of 20 sellers sell 11kg rice at $1/kg so total supply here is 11*20 = 220 kg. Hence total market supply at $1/kg = 80+220 = 300kg.

Next we should now that when supply equals demand then its a equilibrium. if supply>demand then its a surplus while if demand>supply then its a shortage. Here we can see that $1/kg price, total demand = total supply = 300kg. Hence-

At a price of $1 per kg of rice, the quantity demanded in the market for rice is 300 kg of rice and the quantity supplied in the market for rice is 300 kg of rice. Therefore, at a price of $1 per kg of rice the market is at equilibrium.