Let the Demand and Supply for Two Linked Products, Say

question 53

Multiple Choice

Let the demand and supply for two linked products, say corn and soy, be the following: Q_c^d= 12 - 2p_c + p_s; Q_c^s = 4+p_c; Q_s^d = 6-4p_s + p_c; Q_s^s = 4 + p_s. The superscript refers to "demand" (d) or "supply" (s) and the subscript refers to corn (c) or soy (s) . Now, suppose that the demand for corn shifts to Q_c^d = 18 - 2p_c + p_s. If we conduct a partial equilibrium analysis of the corn market, taking the price of soy as given, rather than a general equilibrium analysis, allowing the price of soy to change, we:

• A) underestimate the new price of corn.
• B) overestimate the new price of corn.
• C) correctly estimate the new price of corn.
• D) Overestimate the new price of soy.

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