Consider the perfectly competitive market for an agricultural commodity. The direct market demand curve is Q(P) = 780 − 15P and the direct market supply curve is Q (P) = 15P. The market equilibrium quantity is 390 units at a price of $26. Suppose the government imposes a price support at P = $39.00 and uses a deficiency payment program to implement the floor. What quantity will be sold and what prices will consumers and producers face under this policy? The new quantity demanded is 195 units and the quantity supplied is 585 units. Find the welfare impact for the following: a. Change in consumer surplus and producer surplus. b. Government Expenditure. c. Change in social surplus.
Consider the
The market
Suppose the government imposes a price support at P = $39.00 and uses a deficiency payment program to implement the floor. What quantity will be sold and what prices will consumers and producers face under this policy?
The new quantity demanded is 195 units and the quantity supplied is 585 units.
Find the welfare impact for the following:
a. Change in
b. Government Expenditure.
c. Change in social surplus.
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