Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Suppose the demand function for corn is = 10 2 and supply function is = 3 5. The government is concerned that the market equilibrium

 Suppose the demand function for corn is  = 10  2 and supply function is  = 3  5. The government is concerned that the market equilibrium price of corn is too low and would like to implement a price support policy to protect the farmers. By implementing the price support policy, the government sets a support price and purchases the extra supply at the support price. In this case, the government sets the support price S = 4 . a)Compute the original market price and quantity in absence of the price support policy. b)At the support price S = 4 , find the quantity supplied by the farmers, the quantity demanded by the market, and the quantity purchased by the government. c)Draw a diagram to show the change in the producer surplus due to the implementation of the price support policy. Calculate the change in the producer surplus. d)Draw a diagram to show the change in the consumer surplus due to the implementation of the price support policy. Calculate the change in the consumer surplus. e)Calculate the cost to the government to implement the price support policy. Draw a diagram to show the government cost. f)Suppose now the government switches from price support policy to subsidy policy. For each unit of corn produced, the government subsidizes the farmer B =5/3, where B is the per unit subsidy. Find the new equilibrium price under this subsidy policy. How much money will the government have to spend in order to implement this subsidy policy? 

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

International economics

Authors: Robert J. Carbaugh

13th Edition

978-1439038949, 1439038945, 978-8131518823

More Books

Students also viewed these Economics questions

Question

apply the principles of scheduling.

Answered: 1 week ago