4. For the last 80 years the U.S. government has used price supports to provide income assistance to American farmers. To implement these price supports, at times the government has used price floors, which it maintains by buying up the surplus farm products. At other times, it has used target prices, a policy by which the government gives the farmer an amount equal to the difference between the market price and the target price for each unit sold. Consider the market for corn depicted in the accompanying diagram. a. If the government sets a price floor of $5 per bushel, how many bushels of corn are produced? How many are purchased by consumers? By the government? How much does the program cost the government? How much revenue do corn farmers receive? b. Suppose the government sets a target price of $5 per bushel for any quantity supplied up to 1,000 bushels. How many bushels of corn are purchased by consumers and at what price? By the government? How much does the program cost the government? How much revenue do corn farmers receive? Price of corn (per bushel) $5 4 1 D 1,000 1,200 Quantity of corn (bushels) 800 c. Which of these programs (in parts a and b) costs corn consumers more? Which program costs the government more? Explain. d. Is one of these policies less inefficient than the other? Explain. 2.

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4. For the last 80 years the U.S. government has used price
supports to provide income assistance to American
farmers. To implement these price supports, at times the
government has used price floors, which it maintains by
buying up the surplus farm products. At other times, it
has used target prices, a policy by which the
gives the farmer an amount equal to the difference
between the market price and the target price for each
unit sold. Consider the market for corn depicted in the
accompanying diagram.
a. If the government sets a price floor of $5 per bushel,
how many bushels of corn are produced? How many
are purchased by consumers? By the government?
How much does the program cost the government? How much revenue do corn farmers receive?
b. Suppose the government sets a target price of $5 per bushel for any quantity supplied up to 1,000
bushels. How many bushels of corn are purchased by consumers and at what price? By the
government? How much does the program cost the government? How much revenue do corn
farmers receive?
Price of corn
(per bushel)
$5
4 E
government
3
E
1
D
800
1,000 1,200
Quantity of corn (bushels)
c. Which of these programs (in parts a and b) costs corn consumers more? Which program costs the
government more? Explain.
d. Is one of these policies less inefficient than the other? Explain.
Transcribed Image Text:4. For the last 80 years the U.S. government has used price supports to provide income assistance to American farmers. To implement these price supports, at times the government has used price floors, which it maintains by buying up the surplus farm products. At other times, it has used target prices, a policy by which the gives the farmer an amount equal to the difference between the market price and the target price for each unit sold. Consider the market for corn depicted in the accompanying diagram. a. If the government sets a price floor of $5 per bushel, how many bushels of corn are produced? How many are purchased by consumers? By the government? How much does the program cost the government? How much revenue do corn farmers receive? b. Suppose the government sets a target price of $5 per bushel for any quantity supplied up to 1,000 bushels. How many bushels of corn are purchased by consumers and at what price? By the government? How much does the program cost the government? How much revenue do corn farmers receive? Price of corn (per bushel) $5 4 E government 3 E 1 D 800 1,000 1,200 Quantity of corn (bushels) c. Which of these programs (in parts a and b) costs corn consumers more? Which program costs the government more? Explain. d. Is one of these policies less inefficient than the other? Explain.
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