hey ppl i have already done he working out and need ppl to just confirm my working out etc.
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
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 ?--Qd=1750 & Qs = 2200 so 2200-1750 = 450 ( the gov would buy) and total cost to gov is 450*11=4950
c) compared to the supprt price, what is the extra net benifit derived by consumers from the subsidary price ? what is the cost to taxpayers of the subsidary price ?--stuck on this but for the 1st part of the question is the area under the demand curve i.e. .5*1.8*450 ?? and i have no idea about the cos to tax payers
c)
your calculations for a and b are correct.
I interpret question c) as: Starting from the "support price" equilibrium and switching to the "subsidy)" equilibrium, what is the net benefit to consumers? This would be the area under the demand curve between the two prices of 11 and 9.2. I think the net benefit to consumers is 1.8*1750 + .5*1.8*450.
Under the price support, government is buying excess grain and spending $4950. The subsidy costs $3960. So, government gains 4950-3960=$990 by moving to a subsidy(assuming the government is dumping its purchased grain into the ocean). The net change to grain suppliers is zero. Under both the subsidy or price support, the farmers get $11 per bushel and they sell 2200 bushels.
Taxpayers and consumers win under the switch because 450 bushels of grain get consumed rather than get dumped in the ocean. (Of course, relaxing the ocean dumping assumption and assuming the government does something useful with the grain changes all benefits calculations)
YOU MY FRIEND ARE THE KING !
Thank you for your kind words! I'm glad I could assist you with your calculations. Let's address question c) and break it down further.
Starting with the first part of the question: "Compared to the support price, what is the extra net benefit derived by consumers from the subsidy price?"
To calculate the net benefit to consumers, we need to find the area under the demand curve between the two prices of $11 and $9.2. This represents the additional benefit to consumers from purchasing the agricultural product at a lower price due to the subsidy.
The subsidy amount per bushel is $1.8, and the quantity demanded at the support price equilibrium is 1750 bushels. So, the extra net benefit to consumers from the subsidy price is given by 1.8 * 1750.
However, we also need to consider that some quantity is consumed even at the support price. This additional quantity is the difference between the quantity supplied (2200 bushels) and the quantity demanded (1750 bushels) at the support price. So, the area under the demand curve that represents the benefit from consuming this additional quantity is 0.5 * 1.8 * (2200 - 1750).
Adding these two components together, the net benefit to consumers from the subsidy price is: 1.8 * 1750 + 0.5 * 1.8 * (2200 - 1750).
Moving on to the second part of question c): "What is the cost to taxpayers of the subsidy price?"
The total cost to taxpayers of the subsidy price can be calculated by multiplying the subsidy amount per bushel ($1.8) by the quantity demanded at the subsidy equilibrium (4500 bushels).
So, the cost to taxpayers of the subsidy price is: 1.8 * 4500.
Keep in mind that these calculations are based on the assumptions and information provided in the question. If there are additional factors or information not mentioned, the results may vary.
I hope this helps clarify the calculations for question c)! If you have any further questions, feel free to ask.