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UNIT FOUR (FOR EXAM 4)

Unit Four: Assignment 2: Web Problem U4-A2-P1

Assume the market for cotton is shown by the following supply and demand schedules:

Price per bushel

Q demanded (bushels in thousands)

Q supplied (bushels in thousands)

$4.00

275

350

3.75

280

340

3.50

285

330

3.25

290

320

3.00

295

310

2.75

300

300

2.50

305

290

2.25

310

280

2.00

315

270

1.75

320

260

1.50

325

250

1.25

330

240

1.00

335

230

 

  1. What is the market equilibrium price and quantity? (Look for the price at which quantity demanded = quantity supplied.)
  2. What is the total revenue received by farmers from the sale of cotton? (use P x Q = TR)
  3. If government establishes a price floor of $3.25 per bushel, then is there a surplus or a shortage? How much? (Figure the gap between quantity demanded and quantity supplied at this price.)
  4. How much would the government have to pay in order to buy this surplus?
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