posted by Amanda on .
The market demand and supply curves for an agricultural product are as
Qd = 4,500 - 250P; Qs = 200P
where quantities are in thousands of bushels per annum and price is in dollars
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
(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.