Suppose that the government has been supporting the price of corn. Its free market price is $$ 2.50$ per bushel, but the government has been setting a support price of S3.50 per bushel. Which of the following are ways that the government might try to reduce the size of the corn surplus? Select one or more answers from the choices shown. a. Decrease the support price. b. Institute an acreage allotment program. c. Decrease demand by taxing purchases of corn. d. Raise the support price.
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50 per bushel, higher than the free market price of $2.50 per bushel. ** Show more…
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For the last 80 years the U.S. government has used price supports to provide income assistance to American farmers. To implement these price supports, at times the government has used price floors, which it maintains by buying up the surplus farm products. At other times, it has used target prices, a policy by which the government gives the farmer an amount equal to the difference between the market price and the target price for each unit sold. Consider the market for corn depicted in the accompanying diagram. a. If the government sets a price floor of $\$ 5$ per bushel, how many bushels of corn are produced? How many are purchased by consumers? By the government? How much does the program cost the government? How much revenue do corn farmers receive? 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? c. Which of these programs (in parts a and b) costs corn consumers more? Which program costs the government more? Explain. d. Is one of these policies less inefficient than the other? Explain.
The Department of Agriculture estimates the demand for corn to be given by Qd = 50-2P and the supply to be given by Qs = 8P. The market equilibrium price and quantity are $5 and 40. The Department of Agriculture feels corn prices are too low and goes to government officials for help to support farmers. Official B recommends a $3 per bushel subsidy be provided to corn farmers (producers). Under the subsidy plan, the market price is ______, consumers pay _______ and suppliers receive ______. a. $5.30; $5.30; $8.30 b. $2.60; $2.60; $5.60 c. None of these answers is correct. d. $5.60; $2.60; $5.60
Andrew D.
When the government levies a tax on a good equal to the external cost associated with the good's production, it ________ the price paid by consumers and makes the market outcome ________ efficient. a. increases, more b. increases, less c. decreases, more d. decreases, less
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