Suppose that the demand curve for wheat is Q= 100-10P and the supply curve is Q=10P. The government imposes a price support at Ps= 6 using a deficiency program.

1.What is the quantity supplied and the priced cleared by the market, and the deficiency payment?

2.Graph you answers by showing the different surpluses and the effects of the program.

3.Calculate the change in Consumer and producer surpluses, welfare and dead weight loss.

4.Discuss the overall benefits of imposing such a program on the market.

Take a shot. Draw supply and demand curves. Impose a price support (What are the details of a "deficiency program"?) On your graph, you should see changes in producer and consumer surpluses.

I drew the graph, found CS,PS and DWL, however, how do you find the price cleared by market and deficiency payment? is the the producer surplus x 6$ (by gov)?

price support (deficiency program) of 6$ means that the gov will buy all production of 6$ if not sold through the market.


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asked by Tinu

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