# 2 Suppose the following are th

2 Suppose the following are the supply and demand schedules forrice in India.

Demand Schedule for Rice

 Price (\$ per Pound) Quantity Demanded (pounds/week) 0.50 700 1.00 500 1.50 300 2.00 100 2.50 0

Supply Schedule for Rice

 Price (\$ per pound) Quantity Supplied (pounds/week) 0.50 100 1.00 200 1.50 300 2.00 400 2.50 500
1. Graph this market on a clearly labeled supply-demand diagram.Is there an equilibrium? If yes, what are the price and quantity?If no, please describe the relationship between quantity suppliedand quantity demanded
1. Use the arc elasticity formula (i.e. the formula used in classto calculate percentage changes) to calculate the elasticity ofdemand and supply between each of the prices. Show your work.
1. Suppose an improved technology increases the capacity of theIndian rice market such that at each price the market can supply300 more pounds per week at each price. Please re-evaluate youranswer to part a.

(a)

In following graph, equilibrium is at point A where demand andsupply curves intersect with price P0 (= \$1.5) and quantity Q0 (=300).

(b)

Elasticity of demand (Ed) = (Change in quantity demanded /Average quantity demanded) / (Change in price / Average price)

Elasticity of supply (Es) = (Change in quantity supplied /Average quantity supplied) / (Change in price / Average price)

 P Change in P Average P QD Change in QD Average QD QS Change in QS Average QS Ed Es 0.5 700 100 1 0.5 0.75 500 -200 600 200 100 150 -0.5 1 1.5 0.5 1.25 300 -200 400 300 100 250 -1.25 1 2 0.5 1.75 100 -200 200 400 100 350 -3.5 1 2.5 0.5 2.25 0 -100 50 500 100 450 -9 1

(c)

New demand/supply schedule as follows.

 Price Demand Supply New Supply 0.5 700 100 400 1 500 200 500 1.5 300 300 600 2 100 400 700 2.5 0 500 800

In above graph, new equilibrium is at point B where demand andnew supply curves intersect with lower price P1 (= \$1) and higherquantity Q1 (= 500).

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