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== 2. (20 points) Assume that the world demand and supply functions for coffee are linear. Let Pd 4500 250 250 1Mt x Qd be

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== 2. (20 points) Assume that the world demand and supply functions for coffee are linear. Let Pd 4500 250 250 1Mt x Qd be the demand function, and P, = 500 + 1Mt xQs the supply function, with P and Q standing for price and quantity. P is in pounds (), and Q is measured in megatonnes (Mt). For simplicity, say that the export market is perfectly competitive, and ignore transportation costs or differences in types or brand. We want to analyse what happens to the market when poor weather affects the supply of coffee. Let's further assume that 20% of the global supply of coffee was wiped out. In other words, let's say that at all price points, there are 20% fewer willing suppliers, so that for the same price level, the quantity supplied is decreased by 20%. a. Represent the old demand and supply functions, and find the old market equilibrium price and quantity. Find the producer and consumer surpluses. b. What is the new supply function after the weather event, based on the assumptions above? Represent it. Find the new equilibrium price and quantity. c. Find the new surpluses. What is the effect on the consumer and producer surplus? What happens to total surplus? Discuss. == 2. (20 points) Assume that the world demand and supply functions for coffee are linear. Let Pd 4500 250 250 1Mt x Qd be the demand function, and P, = 500 + 1Mt xQs the supply function, with P and Q standing for price and quantity. P is in pounds (), and Q is measured in megatonnes (Mt). For simplicity, say that the export market is perfectly competitive, and ignore transportation costs or differences in types or brand. We want to analyse what happens to the market when poor weather affects the supply of coffee. Let's further assume that 20% of the global supply of coffee was wiped out. In other words, let's say that at all price points, there are 20% fewer willing suppliers, so that for the same price level, the quantity supplied is decreased by 20%. a. Represent the old demand and supply functions, and find the old market equilibrium price and quantity. Find the producer and consumer surpluses. b. What is the new supply function after the weather event, based on the assumptions above? Represent it. Find the new equilibrium price and quantity. c. Find the new surpluses. What is the effect on the consumer and producer surplus? What happens to total surplus? Discuss

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