Question

8. Before there were charitable trusts in England, it was a common practice for the rich to buy all available grain in years of bad (low) harvest, and then sell it back to the poor at half price. The poor were allowed to buy as much as they wanted at this reduced price. For this question, let's assume that three things are true the poor are the only ones who consume grain, they end up buying as much as they want at the reduced price, and that the reduced price is half what the rich paid for the grain. wrong with his economic log a. In a graph, draw the poor's demand for grain, an initial (vertical) supply curve, and a new (vertical) supply curve for the reduced crop. Show the reduced bad crop equilibrium price assuming there is no interference by the charitable rich. b. With a new graph, now assume the charitable rich enter the market. Rep resent this as an increase in demand. Show the new price, and the price the poor now pay. Assume it is still a low crop. c. Are the poor or anyone else helped by this scheme? Briefly explain. 9. "One man's iunk i this

Answer 1

Solution; (8) (a) graph of poor's demand for grain : ↑ price ol - Quantity . In the above graph the supply come is vertical and is constant at wantity a because the quantity of the cropsis unstant and does not change with change in price. . There is a limited quantity of crop available in the market due to bad harvest and thus the supply cine will always remain vertical irrespective of change in the

demand due to increase or decrease in prices. •The rich have purchased the crop and price pi and their demand are is represented by Di forming an equilibrium at point A. A as a part of their charity they crops to the poor at Price pa that leads to the shift in demand are from D, to pa to form a new equilibrium at point B. (6) Assuming charitable rich enter the market then the new graph is . a price Graphi . Quantity

when sich enters the market they have a capacity to pay higher prices than the poor there by leading to shift in price from Pa top3 which leads to shift in demand Curved from Dg to oz and forming a new equilibrium point of c. • It must be noted that due to entrance of sich people in the market the prices of the crop have rose sharply due to limited supply of the crop. any one got helped by this scheme: (C) Are poor or onder ist scheme where the sich people are Selling their purchased crop at half prices to the poor, the only beneficiary are the poor who you are able to Satisfy their demand at a low prices which needs there! pople who budget constraint however of soon of the

are willing to pay higher prices will get the crop and the poor who unable to pay higher prices will only be able to survive on left out chops