The table below shows the demand and supply curves for a grain crop. a. What are
ID: 1177080 • Letter: T
Question
The table below shows the demand and supply curves for a grain crop.
a. What are the free-market price and quantity for this grain?
Suppose that the government wants to set the price of the grain at $4.00 per bushel, and it uses a price support system with non-recourse loans to do it.
b. What quantity of grain will farmers produce?
c. What quantity of grain will consumers buy?
d. How much will the government end up paying to support the price at $4.00 per bushel? (I want the total amount of money paid, not just the amount per bushel.)
Next suppose that the government uses a target price-deficiency payment system instead. It sets the target price at $4.00.
e. How much of the grain will farmers produce?
f. How much grain will consumers buy?
g. What price will consumers pay for the grain?
h. How much will the government end up paying in total to maintain the target price of $4.00?
i. Briefly, discuss the advantages of a target price-deficiency payment system over a price support system.
Explanation / Answer
a) free market price is $3.5 as at this price, quantity demand = quantity supply. =600 so quantity of grain=600 b)As due to price support system, price is increased to $4,then quantity they would be willing to produce =1000 (at $4 price) c)but consumers are willing to buy only 200 d) so government will be providing subsidy of (1000-200)*4 = $3200 e) due to price defficiency system only difference is paid. So it will be again farmerswilling to buy=600 f) consumers willing to pay = 600 g) consumers willing to pay =$3.5 h)government payment=($4-$3.5)*600=$300 i)Advantage is in this less subsidy is given by government and also demand is increased in this system
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