Answered: The wheat market is perfectly…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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_{The wheat market is perfectly competitive, and the market supply and demand curves are given by the following equations:}

_{QD = 20,000,000 - 4,000,000P QS = 7,000,000 + 2,500,000P}

_{where QD and QS are quantity demanded and quantity supplied measured in bushels, and P = price per bushel.}

_{a. Determine consumer surplus at the equilibrium price and quantity. Provide a fully labelled diagram to support your answer. Show all intercepts, equilibrium points, label axis and curves fully.}

_{b. Assume that the government has imposed a price floor at $2.25 per bushel and agrees to buy any resulting excess supply. How many bushels of wheat will the government be forced to buy? Calculate the consumer surplus with the price floor.}

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