17. For the last 70 years, the U.S. government has used price supports to provide income assistance to U.S. farmers.

At times the government has used price floors, which it maintains by buying up the surplus farm products. At other times, it has used target prices, giving the farmer an amount equal to the difference between the market price and the target price for each unit sold. Use the accompanying diagram to answer the following questions.

800 1,000 1,200

$5 4

3 2

1 0

Price of corn

(per bushel)

Quantity of corn (bushels)

D S

E

a. If the government sets a price floor of $5 per bushel, how many bushels of corn are produced? How many are purchased by consumers? by the government? How much does the program cost the government? How much revenue do corn farmers receive?

b. Suppose the government sets a target price of $5 per bushel for any quantity supplied up to 1,000 bushels.
How many bushels of corn are purchased by consumers and at what price? by the government? How much does the program cost the government? How much revenue do corn farmers receive?

c. Which of these programs (in parts a and

b) costs corn consumers more? Which program costs the government more? Explain.

d. What are the inefficiencies that arise in each of these cases (parts a and b)?