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Question: Discuss which market model appears to best explain the behavior described: Corn prices reached record highs in the United States in August 2012, given the worst drought in decades.

22 Oct 2022,1:10 AM

 

  1. In each of the following examples, discuss which market model appears to best explain the behavior described:
    1. Corn prices reached record highs in the United States in August 2012, given the worst drought in decades. However, by October these prices started to drop again as countries including China, Japan, and South Korea began to purchase from producers in other countries such as Argentina and Brazil.

 

    1. In fall 2012, T-Mobile announced it was close to a merger with its smaller rival MetroPCS. This merger would strengthen T-Mobile’s position as the fourth-largest wireless operator in the United States. The merger would allow the combined company to cut costs and operate on a larger scale.

 

  1. Suppose the demand curve for a good is given by:

 

 

    1. Is this good normal or inferior?  How do you know?

 

 

    1. Suppose this good is peanut butter.  Is good y or good z likely to be jelly?  Is good y or good z likely to be deli meat?  Explain.

 

  1. Suppose the demand and supply curves for a product are given by:

 

    1. What is the market equilibrium price and quantity?

 

 

    1. If the current price of the product is $100, what is the quantity supplied and the quantity demanded? How would you describe this situation, and what would you expect to happen in this market?

 

    1. Suppose the price was not able to rise to the equilibrium price found in part a, and had to stay at $100.  How can the firm allocate the scarce good without raising price?  Give at least two possible solutions and explain why they may be good or bad.

 

  1. Consider the market for automobiles, and draw representative supply and demand curves.
    1. Suppose that the price of gasoline rises, and at the same time, the price of steel (an input to automobile production) falls. Show this on your graph. If you have no other information, what can you say about the change in equilibrium price and quantity?

Expert answer

 

It appears that the global market for corn is functioning relatively efficiently, with prices rising in response to decreased production in the United States and then falling as other countries stepped in to fill the demand. This behavior is consistent with a competitive market model.

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