Question

Assume that farmers in a given area are able to switch back and forth between potato and wheat production depending on market conditions. Similarly, consumers tend to regard potatoes and wheat as substitutes. As a result, the demand and supply of Potatoes are highly sensitive to changes in both potato and wheat prices. Demand and supply functions for Potatoes are as follows:

QD = -1,450 - 25P + 12.5PW + 0.2Y, (Demand)
QS = -100 + 75P - 25PW - 12.5PL + 10R, (Supply)
where P is the average wholesale price of Potatoes (K’ per meda), PW is the average wholesale price of wheat (K’ per meda), Y is income (GNP in K’ billions), PL is the average price of unskilled labor (K’ per hour), and R is the average annual rainfall (in inches). Both QD and QS are in millions of Medas of potatoes.
When quantity is expressed as a function of price, Determine the demand for and supply of Potatoes if PW = K4, Y = K7, 500 billion, PL = K8, and R = 20 inches.

Answer 1

The student's question involves calculating the demand and supply for potatoes using specific economic variables. By substituting the given values into the demand and supply equations, simplified functions for both are derived; however, the calculation of quantity demanded and supplied requires knowing the price of potatoes (P), which is not provided.

Step-by-step explanation:

The student is asking to calculate the demand and supply for potatoes given a set of market conditions and economic variables using the provided demand and supply functions. By substituting the values of PW (average wholesale price of wheat), Y (income or GNP), PL (average price of unskilled labor), and R (average annual rainfall) into the demand and supply equations, we can determine the quantity demanded and supplied of potatoes.

For demand, QD = -1,450 - 25P + 12.5PW + 0.2Y, substituting in PW = K4 and Y = K7,500 billion yields QD = -1,450 - 25P + 12.5(4) + 0.2(7,500) = -1,450 - 25P + 50 + 1,500. Therefore, the demand function simplifies to QD = 100 - 25P.

For supply, QS = -100 + 75P - 25PW - 12.5PL + 10R, substituting in PW = K4, PL = K8, and R = 20 inches yields QS = -100 + 75P - 25(4) - 12.5(8) + 10(20) = -100 + 75P - 100 - 100 + 200. Thus, the supply function simplifies to QS = 75P - 100.

To find the quantity of potatoes demanded and supplied, we would need to know the price of potatoes (P). However, if we set QD equal to QS, we can solve for the equilibrium price.