1. The estimated demand for Canadian Processed Pork is given by Qp = 171 – 20p+ 20pB + 3pc +2Y where Qp is the quantity of pork demanded (millions of kg), p is the dollar price per kg, pB is the price of beef per kg, pc is the price of chicken per kg, and Y is average consumer income in thousands of dollars. The supply for this market is given by Qs = 178 + 40p – 60pB (a) According to the equations, what is the effect of an increase of Pc on the market for pork? Specifically, which curve will shift, in what direction does the curve shift, and how will the equilibrium price and quantity change (increase/decrease). On a corresponding graph of the supply and demand, draw the shifting curve and change in equilibrium. Note that no specific numbers are required here. Just the direction of change. (b) Use the equations to solve for the equilibrium price of pork and quan- tity of pork as functions of the exogenous variables pB, Pc, and Y. These will be linear functions. (c) Suppose pB = 1.5, pc = 3.33, Y = 12.5. Find the equilibrium price and quantity of pork. %3D
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The estimated
QD = 171 − 20p + 20pB + 3pC + 2Y
where QD is the quantity of pork demanded (millions of kg), p is the dollar
price per kg, pB is the price of beef per kg, pC is the price of chicken per
kg, and Y is average consumer income in thousands of dollars. The supply
for this market is given by
QS = 178 + 40p − 60pB
(a) According to the equations, what is the effect of an increase of pC
on the market for pork? Specifically, which curve will shift, in what
direction does the curve shift, and how will the
and quantity change (increase/decrease). On a corresponding graph
of the
equilibrium. Note that no specific numbers are required here. Just
the direction of change.
(b) Use the equations to solve for the equilibrium price of pork and quantity of pork as functions of the exogenous variables pB, pC , and Y .
These will be linear functions.
(c) Suppose pB = 1.5, pC = 3.33, Y = 12.5. Find the equilibrium price
and quantity of pork.
(d) Using your answer to (b), determine how the equilibrium price and
quantity of pork changes for a change in pC . That is, compute ∂p
∂pC
and ∂Q
∂pC
. Do the signs of these derivatives match the answer you
found in (a)? Explain briefly.
(e) Consider now a change in the price of beef. On a graph, show the impact of this on the supply and demand. Without calculating numbers,
can you tell how the equilibrium changes? Compute the comparative statics ∂p
∂pB
and ∂Q
∂pB
and discuss what they tell us regarding the
change in equilibrium.
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