ARE120Homework2_Spring08

ARE120Homework2_Spring08 - University of California, Davis...

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University of California, Davis Agricultural Policy (ARE 120), Spring 2008 Homework #2: Due 10.30 am, Thursday, April 24, 2008 Part A. Domestic Price Support Policies 1. Figure 1 represents the market for U.S. corn under an assumption that corn is not traded internationally. In this diagram S represents supply and D represents demand (both defined at the farm level), P 0 represents the competitive price and Q 0 is the quantity that would be produced and consumed at the competitive price. In table 1 (attached), indicate the directions and magnitudes of the effects of the following policies on prices, quantities, and economic surplus areas (as identified on table 1) relative to the competitive equilibrium: a. A freely transferable production quota of Q 1 (producers own the quota). b. A target price of P T with deficiency payments of P T -P 2 per unit. c. A support price of P T with government purchases sold overseas at price P N per unit. d. Rank the three policies from 1=highest to 3=lowest in terms of the total deadweight costs. e. Rank the three policies from 1=highest to 3=lowest in terms of the deadweight costs per dollar of producer benefits. f. Assume that the price at which the government can dispose of its stocks of corn rises from P N to P 0 . Rank the three policies from 1=highest to 3=lowest in terms of the deadweight costs per dollar of producer benefits. For parts d, e, and f, note that area F = area (C+H) and area E = area (I+J) 2. Show the effects of supply response on the incidence of an import tariff in a small country. Specify short-run, intermediate-run, and long-run supply functions, and show the effects on domestic price, consumption, production, imports, consumer surplus (CS), producer surplus (PS), taxpayer surplus (TS), and total domestic welfare (NS). Summarize your results in a sentence or two.
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This note was uploaded on 05/03/2008 for the course ARE 120 taught by Professor Alston during the Spring '08 term at UC Davis.

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ARE120Homework2_Spring08 - University of California, Davis...

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