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Suppose that the price of the agricultural commodity is supported by the government at level ps. This means that the government will pay the producer
Suppose that the price of the agricultural commodity is supported by the government at level ps. This means that the government will pay the producer the difference between the supported price, Ps, and the market equilibrium price paid by consumers to producers, Peg, per unit of output. $/unit mpc (ho) mpc (hi) Ps 9 [units] 1. On the graph above or on a separate graph, label the initial and final equilibrium quan- tities and prices paid by consumers to producers in this subsidized market. 2. On a separate graph, identify the area corresponding to the change in total (consumer + producer) surplus due to the increase in honey bees from ho to h. 3. On a separate graph, identify the areas corresponding to the initial and final dead weight loss (i.e., foregone surplus) due to the price subsidy. 4. Assume that demand and supply curves are linear as depicted in the figure. Suppose Ps is 25% higher than the initial market price (what buyers are willing to pay sellers). After the increase in pollinator abundance, the market price decreases by 40% and the quantity supplied increases by 20%. Does the change pass a benefit-cost test? 5. Same as the previous question except p, is 70% higher than the initial market price, and after the increase in pollinator abundance the market price decreases by 40% and the quantity increases by 50%. Does the change pass a benefit-cost test? Suppose that the price of the agricultural commodity is supported by the government at level ps. This means that the government will pay the producer the difference between the supported price, Ps, and the market equilibrium price paid by consumers to producers, Peg, per unit of output. $/unit mpc (ho) mpc (hi) Ps 9 [units] 1. On the graph above or on a separate graph, label the initial and final equilibrium quan- tities and prices paid by consumers to producers in this subsidized market. 2. On a separate graph, identify the area corresponding to the change in total (consumer + producer) surplus due to the increase in honey bees from ho to h. 3. On a separate graph, identify the areas corresponding to the initial and final dead weight loss (i.e., foregone surplus) due to the price subsidy. 4. Assume that demand and supply curves are linear as depicted in the figure. Suppose Ps is 25% higher than the initial market price (what buyers are willing to pay sellers). After the increase in pollinator abundance, the market price decreases by 40% and the quantity supplied increases by 20%. Does the change pass a benefit-cost test? 5. Same as the previous question except p, is 70% higher than the initial market price, and after the increase in pollinator abundance the market price decreases by 40% and the quantity increases by 50%. Does the change pass a benefit-cost test
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