1. Assume that the market for wheat is perfectly competitive. Suppose the demand curve for wheat is given by:
QD = 200 – 2P
where QD is the quantity demanded, in bushels, and P is the price, in dollars per bushel. Suppose that the supply curve is given by:
QS = P – 10,
for values of P greater than or equal to 10, where QS is the quantity supplied, and QS = 0 when P < 0.
(1) Find the equilibrium price and quantity of wheat. Draw them in a clearly marked diagram.
(2) Suppose that unfavorable weather conditions shift the supply curve to the left, by 5 bushes of wheat at each price. Again find the equilibrium price and quantity, and draw the new equilibrium on the diagram you constructed for part (1).