Suppose the demand function for wheat is Qd=10−2p and supply function is Qs=3p−5. The government is concerned that the market equilibrium price of wheat is too low and would like to implement a price support policy to protect the farmers. By implementing the price support policy, the government sets a support price ps=4 and purchases the extra supply at the support price.
With regard to Q1, suppose now the government switches from price support policy to subsidy policy. For each unit of corn produced, the government subsidizes the farmer s=5/3. How much money will the government have to spend in order to implement this subsidy policy?
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Suppose the demand function for wheat is Q_d = 10 - 2p and supply function is Qₛ = 3p - 5. The government is concerned that the market equilibrium price of wheat is too low and would like to implement a price support policy to protect the farmers. By implementing the price support policy, the government sets a support price pₛ = 4 and purchases the extra supply at the support price. With regard to Q1, suppose now the government switches from price support policy to subsidy policy. For each unit of corn produced, the government subsidizes the farmer s = 5/3. How much money will the government have to spend in order to implement this subsidy policy? (A) 10 (B) 21 (C) 15 (D) 10/3
Also written as: Suppose the demand function for wheat is Q_d = 10 - 2p and supply function is Q_s = 3p - 5. The government is concerned that the market equilibrium price of wheat is too low and would like to implement a price support policy to protect the farmers. By implementing the price support policy, the government sets a support price p_s = 4 and purchases the extra supply at the support price. With regard to Q1, suppose now the government switches from price support policy to subsidy policy. For each unit of corn produced, the government subsidizes the farmer s = 5/3. How much money will the government have to spend in order to implement this subsidy policy?
Perfect competition has come up 115 times in 7 exams since 2006.
What this question tests
This question is on Price ceilings, floors and subsidies, part of Perfect competition in Microeconomics.
What binding and non-binding price controls and per-unit subsidies do to quantity, shortage and cost.
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