Posted by **Amanda** on Wednesday, October 11, 2006 at 9:27pm.

The market demand and supply curves for an agricultural product are as

follows:

Qd = 4,500 - 250P; Qs = 200P

where quantities are in thousands of bushels per annum and price is in dollars

per bushel.

The government wishes to achieve a higher point on the supply curve than the

initial equilibrium. The desired point would involve both price and quantity

being 10% greater than their initial equilibrium levels. The government is

considering either a subsidy or a support price.

(a) If the subsidy were used, how much would the subsidy per bushel have

to be? What would be the total cost to the government arising from

this subsidy?

(b) If the support price were used, what quantity of output would the

government buy? What would be the total cost to the government

arising from its price supporting initiatives?

(c) Compared to the support price, what is the extra net benefit derived by

consumers from the subsidised price? What is the extra cost to

taxpayers of the subsidised price?

A person named "me" posted this same question on October 10. See my post.

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