MBA

(INTERNATIONAL BUSINESS)
(WEEKEND)
2021-24

ECONOMIC THEORY 1
ASSIGNMENT
DEMAND & SUPPLY

SCHOOL OF INTERNATIONAL BUSINESS

INDIAN INSTITUTE OF FOREIGH TRADE
(DEEMED TO BE UNIVERSITY)

Submitted To: Submitted By:

Prof. Dr. Anchal Arora Kshitij Dhamija(30A)
Question 1. Suppose yearly supply of wheat in Canada is described by the equation = 0.25+P

Where is the quantity of wheat produced in Canada per year (in billions of metric tons) when P is
the average price of wheat (in dollars per metric ton).
a) What is the quantity of wheat supplied per year when the average price of wheat is $2 per
metric ton? What will be the quantity when the price becomes $4? How much will be the
quantity when the price is $6?
b) Sketch the supply curve of wheat. Whether the supply curve follows the law of
supply?............(4M)

Solution 1:
Given supply curve, Qs=0.25 +P

a) Quantity of wheat supplied per year

1. Quantity supplied when, P=$2
Qs=0.25 +2
Qs = 2.25 billion of metric tons

2. Quantity supplied when P=$4

Qs=0.25 +4
Qs=4. 25 billion of metric tons

3. Quantity supplied when P=$6

Qs=0.25 +6
Qs=6.25 billion of metric ton
 b) The supply curve is a graphic representation of the correlation between the cost of a good or service
and the quantity supplied for a given period. We have to sketch the supply curve and here we have
considered X axis as Quantity and Y axis as Price

Yes, this graph follows law of supply which state that when price rises quantity supplied also rises as
when price increases from 2 to 4 quantity supplied also increases from 2. 25 to 4. 25 and so on. So, it
follows law of supply.
Question2. Suppose the market demand curve for cranberries is given by the equation = 500-4P,
while the market supply curve for cranberries (when P 50) is described by the equation

= -100+2P, where P is the price of cranberries expressed in dollars per barrel, and quantity is in
thousands of barrels per year.
At what price and quantity is the market for cranberries in equilibrium? Show this equilibrium
graphically. ………………………………………… (6M)

Solution 2
As given in question
= 500-4P

= -100+2P

Market equilibrium occurs when demand curve and supply curves are intersecting

In this case, we have equilibrium where QD = QS, the quantity supplied is equal to the demand and we
use this relationship to solve the equation.

So,
500 - 4P = -100 + 2P
600 = 6P
P = 100
Thus, the equilibrium price is $100 per barrel. We can then find the equilibrium quantity by
substituting the equilibrium price into the equation for either the demand curve or the supply curve.

Now, to calculate Q
= -100+2P

Q = -100 + 2*100
Q = 100 units
Hence, the market for cranberries is in equilibrium where the market price is $100 and market quantity
are 100 units