8. Suppose the total demand for wheat and the total supply of wheat per month in the Kansas City grain market are as shown below: LO3

a. What is the equilibrium price? What is the equilibrium quantity? Fill in the surplus-shortage column, and use it to explain why your answers are correct.

b. Graph the demand for wheat and the supply of wheat. Be sure to label the axes of your graph correctly. Label equilibrium price P and equilibrium quantity Q.

c. Why will $3.40 not be the equilibrium price in this market?
Why not $4.90? “Surpluses drive prices up; shortages drive them down.” Do you agree?

d. Suppose government establishes a price ceiling of $3.70 for wheat. What might prompt it to establish this price ceiling? Explain carefully the main effects. Demonstrate your answer graphically.

e. Suppose government establishes a price floor of $4.60 for wheat. What will be the main effects of this price floor? Demonstrate your answer graphically.