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In 2011, the demand for rice in India was given by Qd = 100 − 2pR
In 2011, the demand for rice in India was given by Qd = 100 − 2pR. Here Qd is the quantity demanded in kilograms and pR is the price of rice in rupees. Agriculture in India relies heavily on the monsoon rains. 2011 saw a plentiful monsoon and the supply of rice was given by Qs = 10 + pR.
(i) What was the equilibrium price of rice in India in 2011? How much rice was sold in the market? Draw a properly labeled diagram to illustrate your answer. (ii) The rains in 2012 are not as good. In fact a lot of regions are facing a drought like situation. Discuss what might happen to the supply curve of rice in 2012? Will a lack of rains affect the demand for rice? Discuss. (iii) Now suppose demand is not affected. Is Qs = 5 + 0.5pR a possible candidate for the new supply function? How about Qs = 5 + 2pR? Why? (iv) If the new supply function is indeed given by Qs = 5 + 0.5pR what is the new equilibrium price and quantity? Illustrate your answer on the same graph as for the previous part of the question. (v) The government wants to help the poor by keeping rice prices in check. It decides to import some rice into the country. The supply function for imported rice is given by Qimp s = 5+0.5pR. What is the new supply function for the Indian market? Calculate the new equilibrium and illustrate on the graph you have drawn previously. (vi) Will the consumers favour the new policy? What about rice farmers? Why?
Expert Solution
Before start this question lets understand with the help of a example to solve this question
SUPPOSE the demand and supply curve of a commodity x is given the two equation simultaneously Qd=200-p,Qs=50-2p i) find the equilibrium price and equilibrium quantity ii) suppose the price of a factor of production producing the commodity has changed , resulting in the new supply curve given by the equation Q's =80-2p. analysis the two equilibrium price and equilibrium quantity as against the original equilibrium price and equilibrium quantity
equilibrium price P =50 AND Q= 150
if the price production has been changed then under the new condition Qd=Qs - 200-p= 50-2p therefore equilibrium price p =40 and quantity q=200-40 = 160 units thus the equilibrium price decreases and quantity increases
i) same as above Qd=Qs - 100-2pr=10+pr,therefore equilibrium price =30 and equilibrium quantity =100-2(30), 40.thus equilibrium price decreases ans quantity increases
ii)In 2012 are not as good. In fact a lot of regions are facing a drought like situation. in this situation suplly decreases and demand increases and this will set the new equilibrium point .thus supply curve shifts left side as shown in the figure
please see the attached file for the complet solution.
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