Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

3. (60 points) The market demand-and-supply functions of oranges are given below. Q refers to millions of pounds of oranges/month, and p is the price

3. (60 points) The market demand-and-supply functions of oranges are given below. Q refers to millions of pounds of oranges/month, and p is the price per pound (cents).

Demand: p = 220 - 6Q

Supply: p = 120 + 4Q

(a) What is the market equilibrium quantity and price of oranges?

(b) Suppose the government subsidizes 25 cents/pound to orange consumers. What is the new equilibrium quantity and price? (Hint: write down the new supply or demand function first)

(c) At the new equilibrium, what is the price that consumers pay? What is the price that farmers receive?

(d) What is the percentage of subsidy that consumers receive? What is the percentage of subsidy that is pass-through to farmers?

(e) Plot all the supply and demand curves in the same graph of (Q, p) space. Label your horizontal and vertical axis properly. Indicate the direction and the magnitude of shift of any curves. Label the initial and new equilibriums (i.e., e1, e2), and their respective price and quantity you found from (a) and (b).

(f) How many million dollars of subsidy that the government gives to farmers? (You should use the information provided in Part (b); total subsidy = unit subsidy * quantity sold)

(g) Extra credit: Suppose the government subsidizes 25 cents/pound to orange farmers instead. Repeat the analysis above and showhow your answers change in (b), (c), (d) and (f), respectively.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Leading and Collaborating in the Competitive World

Authors: Thomas S Bateman, Scott A Snell, Robert Konopaske

13th edition

1259927644, 1259927645, 978-1260194241

More Books

Students also viewed these Economics questions

Question

How do people develop skills?

Answered: 1 week ago