If we examine the market for rice in USA during the year2007 and 2009, the demand of rice was higher in the year 2007 but it felldown during the year 2009, due to the drop in the export demand of rice. But the Government wants to keep the price of rice at higherlevel.
The given equations show the quantity demanded and quantitysupplied of rice during the year 2007.
Year 2007: Demand: Qd = 1,600 - 125P
Year 2007 Supply: Qs = 440 + 165P
a. Calculate the market clearing price level and quantity inthe year 2007, in that year there were no effective limitations on the production of rice.
b. Why the government wants to keep the price at higher leveli.e. to $5.50 when there is decline in export demand. Will it effect on the quantity demanded or quantity supplied equation and curve and how much?
c. Now with the help of new quantity equation calculate what should be the quantity of rice which the government must buy?