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Suppose that wheat is purchased only by poor people. Their demand for wheat is given by the following schedule:
Price
Quantity
$1 per bushel
10 bushels
2
8
3
7
4
5
The long-run equilibrium price is $3/bushel.
Now suppose that in the spirit of Christmas, a coalition of rich people decide to buy wheat and resell it to poor people for half of whatever the rich people have to pay.
1. List some points on the new demand curve for wheat.
2. Suppose that the rich announce their plan just before Christmas, and suppose that in the short run, the supply of wheat is fixed at 7 bushels. (That is, the supply curve for wheat is vertical at 7.) How much do poor people benefit from the generosity of the rich?
3. Suppose instead that the rich announce their plan a year in advance, and suppose that wheat is supplied by a competitive constant-cost industry. Is this better or worse for poor people than if the rich had made a last-minute announcement?
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