In 1983, the Reagan Administration introduced a new agricultural program called the Payment-in-Kind Program. To see how the program worked, let's consider the wheat market. a.) Suppose the demand function is QD = 28 2P and the supply function is Qs = 4+4P, where P is the price of wheat in dollars per bushel, and is the quantity in billions of bush Find the free-market equilibrium price and quantity, and depict this market graphically. b.) Now suppose the government wants to lower the supply of wheat by 25% from the free-market equilibrium by paying farmers to withdraw land from production. However, the paymen in wheat rather than in dollars-hence the name of the program. The wheat comes from vast government reserves accumulated from previous price support programs. The amount of whea equal to the amount that could have been harvested on the land withdrawn from production (but is instead given to the farmers for free). Farmers are free to sell this wheat on the market. How much is now produced by farmers? How much is indirectly supplied to the market by the government? What is the new market price? How much do farmers gain? Do consumers ga lose?

In 1983, the Reagan Administration introduced a new agricultural program called the Payment-in-Kind Program. To see how the program worked, let's consider the wheat market. a.) Suppose the demand function is QD = 28 2P and the supply function is Qs = 4+4P, where P is the price of wheat in dollars per bushel, and is the quantity in billions of bush Find the free-market equilibrium price and quantity, and depict this market graphically. b.) Now suppose the government wants to lower the supply of wheat by 25% from the free-market equilibrium by paying farmers to withdraw land from production. However, the paymen in wheat rather than in dollars-hence the name of the program. The wheat comes from vast government reserves accumulated from previous price support programs. The amount of whea equal to the amount that could have been harvested on the land withdrawn from production (but is instead given to the farmers for free). Farmers are free to sell this wheat on the market. How much is now produced by farmers? How much is indirectly supplied to the market by the government? What is the new market price? How much do farmers gain? Do consumers ga lose?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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