Microeconomics
Microeconomics
2nd Edition
ISBN: 9781464187025
Author: Austan Goolsbee, Steven Levitt, Chad Syverson
Publisher: Worth Publishers
Question
Book Icon
Chapter 2, Problem 6P

(a)

To determine

Graph the supply curve.

(a)

Expert Solution
Check Mark

Explanation of Solution

Given information:

The supply function of wheat:QSW=6+4PW2PCPF (1)

In Equation (1), “QSW” is the quantity of wheat supplied, “PW” is the price of wheat per bushel, “PC” is the price of corn per bushel, and “PF” is the price of tractor fuel per gallon.

Price of corn (PC): $4

Price of fuel (PF): $2

Calculation:

The supply equation can be simplified by substituting the respective values in Equation (1). This is done because while calculating the change in supply due to the changes in the price of that good, all the other factors are considered constant.

QSW=6+4PW2PCPFQSW=6+4PW(2×4)(1×2)

QSW=16+4PW (2)

The supply equation when other things remain the same is QSW=16+4PW.

Rearrange Equation (2) in terms of price of those goods to derive the invers supply equation.

QSW=16+4PW4PW=16+QSWPW=164+QSW4

PW=4+0.25QSW (3)

Substitute the quantity as zero in Equation (3) to calculate the price of wheat (minimum willing price).

PW=4+0.25QSWPW=4+(0.25×0)PW=4

The minimum wiling price of wheat is $4. The slope indicates that increasing 4 units of quantity leads to increase the price by $1(increasing 1 unit increases the price by $0.25).

By using these information, the supply curve of wheat is illustrated in Figure 1 as follows:

Microeconomics, Chapter 2, Problem 6P , additional homework tip  1

In Figure 1, the vertical axis measures the price of wheat and the horizontal axis measures the quantity of wheat. The upward sloping curve “S” is the supply curve of wheat.

Economics Concept Introduction

Supply curve: A supply curve is a graph which shows the quantities of commodity that the producers are willing to sell at different price levels.

(b)

To determine

The calculation of quantity supply.

(b)

Expert Solution
Check Mark

Explanation of Solution

At price $4, the quantity supply of wheat (QSW ) is calculated by substituting the respective values in Equation (2) as follows:

QSW=16+4PWQSW=16+(4×4)QSW=0

The quantity supplied of wheat at price $4 is 0 unit.

At price $8, the quantity supply of wheat (QSW ) is calculated by substituting the respective values in Equation (2) as follows:

QSW=16+4PWQSW=16+(4×8)QSW=16+32QSW=16

The quantity of wheat supplied at price $8 is 16 units.

(c)

To determine

The changes in the supply of wheat.

(c)

Expert Solution
Check Mark

Explanation of Solution

Given information:

Price of corn (PC) is $6.

Calculation:

The supply equation can be simplified by substituting the respective values in Equation (1). This is done because while calculating the change in supply due to the changes in the price of that good, all the other factors are considered constant.

QSW=6+4PW2PCPFQSW=6+4PW(2×6)2

QSW=20+4PW (4)

The new supply equation when other things remain the same is QSW=20+4PW.

Rearrange Equation (4) in terms of price of those goods to derive the invers supply equation as follows:

QSW=20+4PW4PW=20+QSWPW=204+QSW4

PW=5+0.25QSW (5)

Substitute the quantity as zero in Equation (5) to calculate the price of wheat (minimum willing price).

PW=5+0.25QSWPW=5+(0.25×0)PW=5

The price of wheat is $5. The slope indicates that increasing 4 units of quantity leads to increase the price by $1(increasing 1 unit increases the price by $0.25).

By using this information, the change in supply curve of wheat is shown  in Figure 2 as follows:

Microeconomics, Chapter 2, Problem 6P , additional homework tip  2

In Figure 2, the vertical axis measures the price of wheat and the horizontal axis measures the quantity of wheat demanded. S1 is the initial supply curve of the wheat. The increase in quantity supply of wheat shifts the supply curve from S1 to S2. It leads to increase the choke price from $4 to $5.

Economics Concept Introduction

Supply curve: A supply curve is a graph which shows the quantities of commodity that the producers are willing to sell at different price levels.

(d)

To determine

The changes in the supply of wheat.

(d)

Expert Solution
Check Mark

Explanation of Solution

Given information:

The price of fuel (PF) is $1 and the price of corn remains at $4.

Calculation:

The supply equation can be simplified by substituting the respective values in Equation (1). This is done because while calculating the change in supply due to the changes in the price of that good, all the other factors are considered constant.

QSW=6+4PW2PCPFQSW=6+4PW(2×4)1

QSW=15+4PW (6)

The new supply equation when other things remain the same is QSW=15+4PW.

Rearrange Equation (6) in terms of price of those goods to derive the invers supply equation.

QSW=15+4PW4PW=15+QSWPW=154+QSW4

PW=3.75+0.25QSW (7)

Substitute the quantity as zero in Equation (7) to calculate the price of wheat (minimum willing price).

PW=3.75+0.25QSWPW=3.75+(0.25×0)PW=3.75

The price of wheat is $3.75. The slope indicates that increasing 4 units of quantity leads to increase the price by $1(increasing 1 unit increases the price by $0.25)..

By using this information, the change in the supply curve of wheat is shown below Figure 3:

Microeconomics, Chapter 2, Problem 6P , additional homework tip  3

In Figure 3, the vertical axis measures the price of wheat and the horizontal axis measures the quantity of wheat demanded. S1 is the initial supply curve of the wheat. The reduction in the quantity supply of wheat shifts the supply curve from S1 to S2. It leads to decrease the choke price from $4 to $3.75.

Economics Concept Introduction

Supply curve: A supply curve is a graph which shows the quantities of commodity that the producers are willing to sell at different price levels.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Knowledge Booster
Background pattern image
Recommended textbooks for you
Text book image
ENGR.ECONOMIC ANALYSIS
Economics
ISBN:9780190931919
Author:NEWNAN
Publisher:Oxford University Press
Text book image
Principles of Economics (12th Edition)
Economics
ISBN:9780134078779
Author:Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:PEARSON
Text book image
Engineering Economy (17th Edition)
Economics
ISBN:9780134870069
Author:William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:PEARSON
Text book image
Principles of Economics (MindTap Course List)
Economics
ISBN:9781305585126
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Text book image
Managerial Economics: A Problem Solving Approach
Economics
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Cengage Learning
Text book image
Managerial Economics & Business Strategy (Mcgraw-...
Economics
ISBN:9781259290619
Author:Michael Baye, Jeff Prince
Publisher:McGraw-Hill Education