If we examine the market for rice in Pakistan during the years 2007 and 2009, the demand for rice was higher in the year 2007 but it fell down during the year 2009, due to the drop in the export demand of rice. But the government wants to keep the price of rice at a higher level. The given equations show the quantity demanded and quantity supplied of rice during the year 2007.
Year 2007: Demand: Qd = 1,600 - 125P
Year 2007: Supply: Qs = 440 + 165P
a. Calculate the market-clearing price level and quantity in the year 2007, in that year there were no effective limitations on the production of rice.
b. Why does the government want to keep the price at a higher level, i.e. to $5.50 when there is a decline in export demand? Will it affect the quantity demanded or quantity supplied equation and curve and how much?
c. Now with the help of the new quantity equation, calculate the quantity of rice that the government must buy.
If we examine the market for rice in Pakistan during the years 2007 and 2009, the demand for rice was higher in the year 2007 but it fell down during the year 2009, due to the drop in the export demand of rice. But the government wants to keep the price of rice at a higher level. The given equations show the quantity demanded and quantity supplied of rice during the year 2007.
Year 2007: Demand: Qd = 1,600 - 125P
Year 2007: Supply: Qs = 440 + 165P
a. Calculate the market-clearing price level and quantity in the year 2007, in that year there were no effective limitations on the production of rice.
b. Why does the government want to keep the price at a higher level, i.e. to $5.50 when there is a decline in export demand? Will it affect the quantity demanded or quantity supplied equation and curve and how much?
c. Now with the help of the new quantity equation, calculate the quantity of rice that the government must buy.
