Consider the market for soybeans. The market demand is given by the equation P = 1000...

Consider the market for soybeans. The market demand is given by the equation P = 1000 – 2Q, where, P is the price and Q is the quantity. The market supply is given by the equation P = 200 + 2Q. For each of the following questions please show the steps through your final answer and not just your final answer.

1) Plot the supply and demand curves (Hint: start with P = 200, 300, 400, ... 1000 to calculate quantity supplied and demanded). What is the equilibrium price and equilibrium quantity in this market?

2) Describe the process of price adjustment in words and in a graph when the market price is below the equilibrium price.

3) Assume that a soybean supplier wishes to increase the price for soybeans from £600 to £650. Calculate the price elasticity of demand for the change in price.

4) Would you recommend the supplier to increase the price to £650?

5) A supplier of soybeans reported that quantity demanded of soybeans decreased by 12% when a major supplier of chickpeas reduced the price of chickpeas by 8%. What is the cross-price elasticity of demand? Comment on the result.

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Expert Solution

Rahul Sunny answered 1 year ago

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