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Agriculture is the backbone of a number of economies, like Pakistan, India,
China and others. The expansion of fertilizer's production, mechanization
and pesticides is considered as a significant factor to enhance the growth
of agricultural sector in these countries. Here we will take the case of
Pakistan.
Pakistan is a major exporter of rice and cotton. Suppose Pakistan is
expecting bumper rice, cotton and sugarcane crops this year. By far, this
situation will fluctuate price, demand and supply of these commodities in
domestic and international market.
Hypothetical data of quantity supplied (Qs) and quantity demanded (Qd) of
rice in domestic market and international market for two years is given
below.
                                                2010                                                                                  2011
                       Price(per kg)       Qd(kg)     Qs(kg)                                       Price(per kg)      Qd(kg)         Qs(kg)

Domestic market       20            1880         1780                                                 15               1910             1710
International market   21            4000          3450                                                17               4050             7100
In the international market, the demand for rice is increasing day by day
because of two main reasons, firstly population of the world is growing
with 1.7% per year; secondly it is used as biofuel. The demand and supply
equations of rice in domestic market are Qd = 2000- 6P and Qs = 1500 + 14P
respectively. With the help of above data, solve questions given below.

Requirements:
a) Find the equilibrium price and equilibrium quantity of rice in
domestic market.
b) How much quantity demanded of rice will be affected as a result of
decrease in price of rice from Rs.20 to Rs.15 per kg in the domestic
market? (Give your answer after calculating price elasticity of
demand)
c) How much quantity supplied of rice will be affected as a result of
decrease in price of rice from Rs.20 to Rs.15 per kg in the domestic
market? (Give your answer after calculating price elasticity of
supply)
d) If rice is not used in biofuel, how would this situation affect the price
and quantity sold of rice in domestic market? Indicate graphically.

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