Question

b. Suppose the government sets a target price of $5 per bushel for any quantity supplied up to 1,000 bushels. How many bushels of corn are purchased by consumers and at what price? By the government? How much does the program cost the government? How much revenue do corn farmers receive?

Answer 1

Consumers will purchase corn up to 1,000 bushels at $5 per bushel, and the government will purchase any additional corn at the market price. The cost to the government and the revenue received by corn farmers depend on the quantity of corn supplied beyond 1,000 bushels.

Step-by-step explanation:

In this scenario, the government sets a target price of $5 per bushel for any quantity supplied up to 1,000 bushels. This means that consumers will purchase all the corn up to 1,000 bushels at the price of $5 per bushel. The government will have to purchase any additional corn supplied beyond 1,000 bushels at the market price, which is currently $7.60 per bushel.

The cost to the government will depend on the quantity of corn supplied beyond 1,000 bushels. If, for example, 1,200 bushels of corn are supplied, the government will purchase the additional 200 bushels at the market price of $7.60 per bushel.

Corn farmers will receive a price of $5 per bushel for the first 1,000 bushels, and if they supply more than 1,000 bushels, they will receive the market price of $7.60 per bushel for the additional quantity. The revenue corn farmers receive will depend on the quantity of corn they supply.

Answer 2

With a price floor of $5, the quantity of corn supplied is 1,200 bushels. The quantity demanded is only 800 bushels: there is a surplus of 400 bushels. The government therefore has to buy up the surplus of 400 bushels, at a price of $5 each: the program costs the government 400 × $5 = $2,000. Corn farmers sell 1,200 bushels (800 to consumers and 400 to the government) and therefore make 1,200 × $5 = $6,000 in revenue.a. With a price floor of $5, the quantity of corn supplied is 1,200 bushels. The quantity demanded is only 800 bushels: there is a surplus of 400 bushels. The government therefore has to buy up the surplus of 400 bushels, at a price of $5 each: the program costs the government 400 × $5 = $2,000. Corn farmers sell 1,200 bushels (800 to consumers and 400 to the government) and therefore make 1,200 × $5 = $6,000 in revenue.

Step-by-step explanation: