Corn is a very valuable product for which the U.S. government routinely offers subsidies. With no price support, the equilibrium price for corn is $300 per ton and the equilibrium quantity is 500 million tons per year. Suppose that the government agrees to pay farmers $350 for every ton of corn they produce and can't sell in the market. According to the farmer's market supply curve, 600 million tons per year is supplied at the price of $350 a ton, so production should increase to this amount. However, domestic users of corn cut back their purchases. Only 450 million tons a year is demanded at the price of $350 a ton, and purchases decrease to this amount. Farmers continue to produce 500 million tons of corn per year, so because they produce a greater quantity of corn than domestic buyers are willing to purchase, something must be done with the surplus. To make the price support work, the government decides to buy the surplus. a. In this example, how many million tons does the government agree to buy? At what price? b. How much in total does the U.S. government provide in subsidy to the corn farmers? Why?

Corn is a very valuable product for which the U.S. government routinely offers subsidies. With no price support, the equilibrium price for corn is $300 per ton and the equilibrium quantity is 500 million tons per year. Suppose that the government agrees to pay farmers $350 for every ton of corn they produce and can't sell in the market. According to the farmer's market supply curve, 600 million tons per year is supplied at the price of $350 a ton, so production should increase to this amount. However, domestic users of corn cut back their purchases. Only 450 million tons a year is demanded at the price of $350 a ton, and purchases decrease to this amount. Farmers continue to produce 500 million tons of corn per year, so because they produce a greater quantity of corn than domestic buyers are willing to purchase, something must be done with the surplus. To make the price support work, the government decides to buy the surplus. a. In this example, how many million tons does the government agree to buy? At what price? b. How much in total does the U.S. government provide in subsidy to the corn farmers? Why?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

A small province is planning to levy a hotel room tax of $20 per night on hotel owners to recover some of the costs of government services associated with nonresidents. The average price of a standard hotel room in this province before the implementation of the tax is $150 per night. Market analysts predict that the average price of a hotel room will increase to $155 per night after the tax. a) Use the supply and demand model to illustrate and explain how the proposed tax on hotel operators will impact the market for hotels. Clearly show in your diagram and explain in words the impact on price and quantity of hotel rooms as well as the revenue raised and any deadweight loss caused by the tax. b) Discuss how tax incidence is shared between buyers and sellers. What share of this tax is paid for by buyers, and what share is paid for by sellers? c) What do your findings in part b tell you about the price elasticity of demand for hotel rooms compared to the price elasticity of supply?…
In the free-market equilibrium of a perfectly competitive market, the price of the good is 90 dollars and the elasticity of demand and the elasticity of supply values are respectively Ed* = -6.6 and Es* = 4.1 Suppose the government imposes a per-unit tax equal to 10.4 payable by consumers. Calculate the estimate of the price firms charge consumers in the tax equilibrium using the elasticity values provided above. Then enter that price value below.
Suppose the demand and supply of firearms in Jail are given as follows: Demand: P = 630 − 349Q Supply: P = 480 + 2Q in which Q is the quantity of firearms in million units and P is the price per each firearm in Jalian dollars. a. The equilibrium price is [ANS1] Jalian dollars and the equilibrium quantity is [ANS2] million units. b. Suppose the government purchases 10 million units of firearms back from the market. After the government enters the market, on the new demand curve, when the price is 555 Jalian dollars, the total quantity demanded is [ANS3] million units of firearms. c. Suppose the government wants to use such buyback program to reduce the quantity of firearms in the community to zero. The government will need to buy at least [ANS4] million units of firearms from the market and spend at least [ANS5] million dollars. d. Suppose the government wants to use taxation to reduce the quantity of firearms in the community to zero. The government will need to impose a…
The following formulas represent the demand and supply curves for corn: QD = 1,600 – 125 * P QS = 440 + 165 * P Calculate the equilibrium price and quantity in this market . Suppose corn becomes less popular so the market demand curve is now given by QD = 1,020 – 125 * P. Calculate the new equilibrium price and quantity and illustrate the movement from the old equilibrium to the new one.
Suppose the government of the island has decided to give consumers a more attractive price for tomatoes by imposing a fixed, per unit subsidy. Thus, start with the original demand (Qd = 450 - 100P) and supply (Qs = 50P) and analyze this new intervention, the subsidy. The subsidy works like this: each tomato seller receives a 3-dollar refund for each kilogram of tomatoes sold. Write down the equation for the new "effective supply" curve. Determine the new equilibrium quantity and equilibrium price. What is the price that the consumers will pay for their tomatoes? What is the price that the producers will effectively earn for their tomatoes, inclusive of the subsidy? How much will the government spend on tomato subsidies in this case in total? (Recall the units of measurement: P is the price in dollars per kilogram of tomatoes; and Q is the quantity of tomatoes, expressed in thousands of kilograms.) Graphically depict the new equilibrium complete with (solved) values for the new…
A market is described by the following supply and demand curves: QS = 3P QD = 400−P The equilibrium price is $ and the equilibrium quantity is . Suppose the government imposes a price ceiling of $120. This price ceiling is , and the market price will be $ . The quantity supplied will be , and the quantity demanded will be . Therefore, a price ceiling of $120 will result in . Suppose the government imposes a price floor of $120. This price floor is , and the market price will be $ . The quantity supplied will be and the quantity demanded will be . Therefore, a price floor of $120 will result in . Instead of a price control, the government levies a tax on producers of $40. As a result, the new supply curve is:
In a competitive market, if price is higher than the equilibrium price then the quantity demanded will be lower than the quantity supplied. True or False
Suppose that at equilibrium, the price elasticity of demand for wheat is -1.5 and the price elasticity of supply is 0.5. If the government imposes a price ceiling that is 12% below the equilibrium price, this price constraint will lead to: A) A shortage equal to 24% of the equilibrium quantity B) A surplus equal to 24% of the equilibrium quantity C) A shortage equal to 2.4% of the equilibrium quantity D) A surplus equal to 2.4% of the equilibrium quantity
The government of a State has been experiencing an increase in number of obesity cases. Research suggests an increase in consumption of a particular fast food item is responsible for high number of obesity cases. As a result, the government of that State is considering an imposition of $1 tax. Monthly demand and supply for this good are QD=21-1P and QS= -1+1P respectively. Draw the demand and Supply curve for fast food before the tax is imposed. Calculate the equilibrium price and quantity, consumer and producer surplus, and label them on the graph. Calculate the price elasticity of demand and supply for fast food. If the State government imposes a tax, who will bear the most of the burden of the tax? Suppose that the State government finally imposes a $1 tax on fast food. What will the new equilibrium price and quantity? Include the tax on your graph. Calculate the consumer and producer surplus and label them on the graph. Is there any deadweight loss resulting from the tax on that…
A federal regulation that required that all beef consumed in the US must be grown and processed in the US is likely to: Drive up the price of beef in the US Increase beef consumption in the US Decrease consumption of chicken in the US (assuming chicken is a substitute for beef in the US) Increase international trade in beef products
Suppose that the demand and supply curves for green peas are given by QD = 10 – 8P and QS = 2P, where P is the price per pound and Q is measured in thousands of pounds. If the price per pound of peas is $0.50, the market _____, so the price will _____. has excess demand of 3,000 pounds; rise has excess supply of 1,000 pounds; fall is in equilibrium; remain unchanged has excess demand of 5,000 pounds; rise
At a price of $100 per office chair, 120 office chairs are demanded by consumers, but at a price of $110 per office chair, only 90 office chairs are demanded. The supplier is willing to supply x office chairs for a price, in dollars, of p(x) = 0.175x + 63.75. (a) What is the market equilibrium quantity of office chairs? office chairs (b) What is the market equilibrium price in dollars? $