a. To alleviate the negative impact of COVID-19 on Chinese farmers, the government has set the price
Question:
a. To alleviate the negative impact of COVID-19 on Chinese farmers, the government has set the price of rice at $300 per tonne, which is above the market equilibrium price of $250 per tonne. Use a demand and supply diagram to show and explain the impact of the government's policy on equilibrium quantity and price of rice.
b. With the diagram in part (a), explain the change the consumer surplus, producer surplus and the deadweight loss in the domestic rice market. Assume that the China does not trade rice internationally.
c. Suppose that after six months changes its policy from price regulation to a subsidy payment to rice producers. Analyse the impact of the new policy on the equilibrium price and quantity of rice. d. Compare and contrast the impact of the new policy on the efficiency of the rice market relative to the impact of the price regulation policy. Which policy is better, the price regulation or the subsidy?