Question

frqs
include correctly labeled diagrams, if useful or required, in explaining your answers. a correctly labeled diagram must have all axes and curves clearly labeled and must show directional changes. if the question prompts you to \calculate,\ you must show how you arrived at your final answer.
assume that grainland currently produces wheat and does not trade wheat in international markets.
(a) draw a correctly labeled demand and supply graph for the domestic wheat market in grainland. label the equilibrium price, pₑ, and the equilibrium quantity, qₑ.
(b) suppose the price of wheat in the world market is lower than the domestic price of wheat in grainland. assume now grainland wants to trade wheat in the world market. (i) on your graph from part (a), label the world market price of wheat as pw, and identify the domestic quantity demanded of wheat at pw, as qd, and the domestic quantity supplied of wheat labeled as qs. (ii) will grainland export or import wheat? explain.
(c) with international trade in wheat, who will benefit in grainland: domestic producers, domestic consumers, neither or both? explain.
(d) suppose that the government of grainland decides to provide a subsidy for wheat farmers to make the country more competitive and sell wheat at the world market price so that all wheat is produced domestically. show the effect of the subsidy on your graph in part (a).
instructions: include correctly labeled diagrams, if useful or required, in explaining your answers. a correctly labeled diagram must have all axes and curves clearly labeled and must show directional changes. if the question prompts you to \calculate,\ you must show how you arrived at your final answer.
assume the market for oranges in the united states is perfectly competitive. the market is currently in equilibrium.
(a) draw a correctly labeled graph of the domestic market for oranges. label the equilibrium price as pe and the equilibrium quantity as qe. on your graph, identify the areas representing consumer surplus and producer surplus.
(b) suppose a new harvesting technology is invented that makes it significantly cheaper to pick oranges. on your graph from part (a), show the effect of this new technology on the market. label the new equilibrium price as p2 and the new equilibrium quantity as q2.

Explanation:

(a) For the domestic wheat market in Grainland, draw a demand - supply graph with the price on the vertical axis and quantity on the horizontal axis. The demand curve slopes downwards and the supply curve slopes upwards. The intersection gives the equilibrium price $P_{e}$ and quantity $Q_{e}$.
(b)(i) Mark the world - market price $P_{w}$ below $P_{e}$ on the vertical axis. Draw a horizontal line at $P_{w}$. The quantity demanded at $P_{w}$ is $Q_{d}$ (where the $P_{w}$ line intersects the demand curve) and the quantity supplied at $P_{w}$ is $Q_{s}$ (where the $P_{w}$ line intersects the supply curve). Since $Q_{d}>Q_{s}$, Grainland will import wheat.
(c) Domestic consumers will benefit. With international trade, the price falls to the world - market price $P_{w}$. Consumer surplus increases as they can buy more wheat at a lower price. Domestic producers will be worse off as they receive a lower price and produce less.
(d) A subsidy to wheat farmers will shift the supply curve downwards by the amount of the subsidy. The new supply curve will intersect the demand curve at a lower price and higher quantity.

For the orange market:
(a) Draw a demand - supply graph for the domestic orange market. The equilibrium price $P_{E}$ and quantity $Q_{E}$ are at the intersection of the demand and supply curves. Consumer surplus is the area above the price and below the demand curve, and producer surplus is the area below the price and above the supply curve.
(b) The new harvesting technology reduces the cost of production, shifting the supply curve to the right. The new equilibrium price $P_{2}$ is lower and the new equilibrium quantity $Q_{2}$ is higher.

Answer:

(a) Draw a demand - supply graph with appropriate labels for the wheat market in Grainland.
(b)(i) Mark $P_{w}$, $Q_{d}$, and $Q_{s}$ on the graph. Grainland will import wheat because $Q_{d}>Q_{s}$.
(c) Domestic consumers will benefit because of lower prices and increased consumption. Domestic producers will not benefit due to lower prices and reduced production.
(d) Shift the supply curve downwards to show the effect of the subsidy.
For the orange market:
(a) Draw a demand - supply graph with labels for $P_{E}$, $Q_{E}$, consumer surplus, and producer surplus.
(b) Shift the supply curve to the right to show the effect of the new technology, with new labels $P_{2}$ and $Q_{2}$.