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Question - Suppose the market for corn in Utopia has market demand of P = 1000 - 2Q and market supply of P = 200 + 6Q. Assume the market for corn in Utopia is a closed market. Use this information to answer this set of questions. Make sure you show all of your work and do not just provide your final answer.

a. Given the above information, what is the equilibrium price and equilibrium quantity in this market? What is total farmer revenue in this market?

Suppose the government implements a price floor of $900 per unit of corn in this market where the government agrees to maintain this price floor by purchasing any excess supply at the price floor price.

b. Given this price floor, how many units of corn will be purchased by consumers? How many units of corn will be supplied by farmers in Utopia? How many units of corn will be purchased by the government?

c. Given this price floor what will be the direct cost to the government of implementing this price floor?
Suppose that the cost of storing each unit of corn is $100 per unit for the year.

d. Given this information and the described price floor what will be the total cost to the government of implementing this price floor?

e. Given the price floor what is total farmer revenue from selling corn in this market?

Now, suppose the government replaces the price floor program with a subsidy or price guarantee program. Furthermore, suppose that the price guarantee is $900 per unit of corn.

f. Given this information and the price guarantee program, how many units of corn will consumers purchase? What price will consumers pay for this corn?

g. Given this information and the price guarantee program, how many units of corn will be purchased by the government?

h. Given this information and the price guarantee program, what will be the cost to the government of this program?

i. Comparing the two different policies, the price floor or the price guarantee, which of these two programs will corn farmers in Utopia prefer and why will they prefer it?

j. Comparing the two different policies, the price floor or the price guarantee, which of these two programs will the government of Utopia prefer and why will they prefer it?

Microeconomics, Economics

  • Category:- Microeconomics
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