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1. The demand function of rice is: Qd = 480 - 0.1P. The quantity of rice in year t is Qo=270, and in year +1
1. The demand function of rice is: Qd = 480 - 0.1P. The quantity of rice in year t is Qo=270, and in year +1 is: Qo2 = 280. (Q: thousand ton, P: dong/kg). a. Calculate the market price of rice in yeart and year t + 1. (point) b. Give your comment about the income of the farmers in year 1 + 1 and year 1. (1 point) c. To ensure the income of the farmers, the government conducts these following solutions: Solution 1: Set a floor price in year 1+1 at the amount of 2100dong/kg and commit to buy all the surplus. Solution 2: In year 1+1, the government does not intervene directly but promise to grant a subsidy for the farmers with the value of 100 dong/kg. Calculate the income of the farmers and the expenditure, which the government has to pay in each solution. (2 points) In your opinion, which solution should the government choose? Why? (1 point) d. If the government imposes a tax 100dong/kg if year 1 + 1, what is the price that the farmers receive? Who will incur the tax? Why? (2 points)
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