Problem

1. In recent years, the government of Pakistan has established a support price for wheat of about $0.20 per kilogram of wheat. At this price, consumers are willing to purchase 10 billion kilograms of wheat per year, while Pakistani farmers are willing to grow and harvest 18 billion kilograms of wheat per year. The government purchases and stores all surplus wheat.

i. What are annual consumer expenditures on the Pakistani wheat crop?

ii. What are annual government expenditures on the Pakistani wheat crop?

iii. How much, in total, do Pakistani wheat farmers receive for the wheat they produce?

2. Consider the information in Problem 1 and your answers to that question. Suppose that the market clearing price of Pakistani wheat in the absence of price supports is equal to $0.10 per kilogram. At this price, the quantity of wheat demanded is 12 billion kilograms. Under the government wheat price-support program, how much more is spent each year on wheat harvested in Pakistan than otherwise would have been spent in an unregulated market for Pakistani wheat?