3.3 Changes in Equilibrium P... CURRENT OBJECTIVE Use the...

3.3 Changes in Equilibrium P... CURRENT OBJECTIVE Use the four-step process to explain how simultaneous shifts in supply and demand affect equilibrium Question Corn syrup and maple syrup are substitutes. News of health benefits from maple has increased the demand for maple syrup and decreased the demand for corn syrup. Meanwhile, the government has subsidized corn crops, a key ingredient of corn syrup. As a result, the equilibrium price of corn syrup ____ and the equilibrium quantity ____ Select the correct answer below: O is unknown; decreases O is unknown; increases O increases; is unknown O decreases; is unknown FEEDBACK MORE INSTRUCTION S

Transcript

00:01 Hello, let's calculate the answer to the first part, part a.

00:09 We need to calculate the equilibrium price and equilibrium quantity.

00:13 And for this we make equal quantity demanded and quantity supplied.

00:22 So this should be equal.

00:28 And if we make them equal, we will have 300 times price.

00:34 And this would be equal to 1500 so the price is i believe it's 50 oh sorry it's 5 yeah equilibrium price is 5 and equilibrium quantity using any of this equation we can use either supply function or demand function it will be equal to 1 ,475.

01:14 This is the equilibrium quantity.

01:23 Now we are going to part ab.

01:28 Let's calculate the consumer surplus at the equilibrium price and quantity.

01:41 We multiply this by one half because we use the formula of the right triangle.

01:47 Here we use the price at which quantity demanded is equal to 0 and it will be 0 when a price is 16 .8.

02:04 At this price quantity demanded is equal to 0 minus the equilibrium price which is 5 multiplied by the quantity and we can find if we calculate this our answer would be 8 ,702 .5 this is consumer price and quantity.

02:42 Okay now part c and d here we have price elasticity.

02:47 Let's start with price elasticity of demand at this point.

02:52 It will be equal to the derivative of the quantity demanded with respect to price.

02:58 This is negative 125 multiplied by the price which is 5 and divided by the equilibrium quantity and if we calculate our answer is negative 0 .42 so as we can see a demand is inelastic and we can also calculate the answer to part d here we have price elasticity of supply we use exactly the same formula.

03:42 Derivative of the supply function with respect to price is 175, multiply by price and divide by the quantity.

03:57 In this case we have 0 .59.

04:04 Supply is also inelastic.

04:09 Now we use the r -kalicity formula, so the midpoint.

04:13 Formula if the price of corn increases by 10 % above the current equilibrium price.

04:22 Again we need to calculate the price elasticity of our demand.

04:30 So the new price will be if price of corn increases by 10 % it will be 5 .5 minus the old price and divided by the mid -pointed.

04:48 Point and we need to find the new quantity so when price is 5 .5 the new quantity would be equal to 1 ,40012 .5 minus the old quantity and again divided by the midpoint and the midpoint is 1 ,443 .75.

05:38 And now we can find this fraction.

05:46 So here we have 0 .5 divided by 5 .25...

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