Answer to Question #145105 in Microeconomics for Bora Roçi

Question

Suppose that the quantity of corn supplied depend on the price of corn (P) and the amount of rainfall (R). The demand for corn depends on the price of corn and the level of disposable income (I). The equations describing the supply and demand relationships are Qs=20R +100P and Qd=4000-100P+10I.
a) sketch a graph of demand and supply curves that shows the effect of an increase in rainfall on the equilibrium price and quantity of corn.

Answer 1

$$Solution$$

An increase in rainfall will increase supply, lowering the equilibrium price and increasing the

equilibrium quantity.

To explain:

The supply of corn depends on price of corn (P) and the amount of rainfall (R). The estimated supply curve has been given

$$Qs = 20R + 100P$$

Both R and P positively relate to supply of corn. It means if price of corn or rain increase then supply of corn would also increase. Most important fact is that, if price of corn changes then supply curve would not shift. We make a movement along supply curve, but if rain change then supply curve would shift to either right or left. We have shown above situation in the diagram.

With an increase in rainfall, the supply curve shifts to the right and equilibrium price fall from P1 to P2 in the market. Equilibrium quantity has increased from Q1 to Q2.

New supply curve is shown by 'S1'