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Suppose the market for wheat is characterized by: Demand: P = 11 - q Supply: P = 2 + 0.5q where P is the price

Suppose the market for wheat is characterized by:

Demand: P = 11 - q

Supply: P = 2 + 0.5q

where P is the price per bushel and q is in millions of bushels.

  1. What is the equilibrium P and Q?
  2. If there is a price floor of $7, what is the surplus? Show the situation on a graph. If the government buys the surplus, what is the taxpayer cost? Show on the graph.
  3. If demand were more elastic, how would that have changed the outcome of the price floor? Explain.

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