Posted by
**ratboy** on
.

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

Qd = 4500-250P and Qs = 200p

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

the government wishes to acheive a higher point on the supply curve than the initial equilibrium. the desired point would involve both price and quantity being 10% greater that their initial equlibrium levels. the government is considerting either a subsidary or support price.

a) if the subsidary were used, how much would the subsidery per bushel have to be ? what would be the total cost on the government arising from this subsidary?--done this by getting equlibirum where p = 9.2 so subsidy is 11-9.2 = 1.8 and total cos to gov is 3960

regarding the answer to a, could u plesae explain to me why the equilibrium price for this calculation is not 10 and if not how did u get 9.2

many thanks