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The farmers' political lobby is very powerful in a small European country. In view of the coming election, the minister of agriculture in the incumbent
The farmers' political lobby is very powerful in a small European country. In view of the coming election, the minister of agriculture in the incumbent government proposes a price support for butter, a major farm product in the country. The minister suggests to set the minimum domestic price for butter at 4 per kilogram and impose a 1.10 per kilogram tariff on butter imports. To implement the price support, the government would buy any excess supply of butter at the support price and then sell it in the export market at the world price, which is 3 per kilogram. The country's demand for butter and the domestic supply of butter are described by the following equations: QD = 48 - 10P QS = 20 10P where QD and QS are, respectively, the quantities demanded and supplied in millions of kilograms and P is the price in euros per kilogram. Evaluate the expected effects of the minister's proposal on the domestic farmers, consumers, and the country's overall national well-being. Specifically: 1. What would be the farmers' gain? 2. What would be the effect on the domestic consumers? 3. How much would the price support cost the government (i.e. taxpayers)? 4. What
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