2009PS 10 Solutions

# 2009PS 10 Solutions - , this is the price the producers get...

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AEM 4150 Price Analysis Fall Semester 2009 Homework Assignment 10 Suggested Solutions Question 1 (a) Under no government involvement: Q s =Q d 10 + 25P = 500 – 10P 35P = 490 P* = 14 Q = 10 + 25(14) = 500 – 10(14) Q* = 360 (b) Under price support: The producers get 15 dollars per bushel The consumers pay 15 dollars per bushel Q d = 500 – 10(15) Q d = 350 Q s = 10+25(15) Q s = 385 Total cost for the government: (385-350)(15) = \$525 million (the shaded area) 1 Q P 14 S D 360

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(c) Under target price - deficiency scenario: Producer Price = \$15 Solve for Q s : Q s = 10 + 25(15) Q s = 385 Solve for Consumer Price: 385 = 500 – 10P 10P = 115 Consumer Price = \$11.5 Solve for Deficiency Payment: (the shaded area) (15-11.5)(385) = \$1,347.5 million Q P 14 S D 350 360 385 15 Q P 14 S D P target = 15 P consumer = 11.5 360 385 2
(d) Under supply control of 300 million bushels: Q s = Q d 300 = 500 – 10P 10P = 200 P quota = \$20
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Unformatted text preview: , this is the price the producers get and the consumers pay Question 2 (a) False. With the price control, there was a shortage of gasoline; when the price rises, suppliers produce more gasoline and demanders are able to purchase more. (b) False. The negative weather shock shifts the supply curve to the left and increases the price of the crop and, because the demand for it is inelastic, boosts farmers total revenue. (c) This is true, but remember the mechanism by which the price change happens is different. With a tariff, the price increases because foreign suppliers decrease their supply of the good at all prices. The quota, on the other hand, forces the export supply curve to become vertical at the quota amount. Q P 14 360 S D 300 P quota = 20 3...
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## 2009PS 10 Solutions - , this is the price the producers get...

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