Suppose that demand and supply in the market for Brazil nuts is linear, with a historic market price of $.50 per pound and 10 million pounds sold. In 2004, a news item raised health fears about the nuts. That year, the market price fell to $.45 per pound and only 8 million pounds traded. An estimate for the equation of the supply of Brazil nuts (where Q^S is in millions of pounds and P is in dollars) would be:

Question

Quizplus · Accepted Answer

We know that in 2004 the market price was $.45 per pound and only 8 million pounds traded. Using the historic market price and quantity as a second set of data points, we can determine the slope of the supply curve. The slope equals (10 - 8) million pounds / ($.50 - $.45) = 20 million pounds / dollar. We can then use the point-slope formula to find the equation of the supply curve: Q^s - 10 = 20(P - $.50), which simplifies to Q^s = -10 + 40P. Therefore, the best choice is D.

Suppose That Demand and Supply in the Market for Brazil