Developed countries often intervene in their agricultural industries, using price floors or quotas (supply
management). As an economist in the Department of Agriculture you have estimated the demand to be P = 170 − Qd and supply to be P = 20 + 2Qs for the sheep industry. You have been asked to evaluate two policy choices. Quantities are in tons.
a) To begin with, there are no interventions. Find the equilibrium Q and P.
P = ?$
b) Option 1: Price floor = $130, the government buys up any excess supply.
Find Qd, Qs, excess supply, and the cost to the government.
Qd = ?
Cost = $?
c) Option 2: Quota = 36.
Find the corresponding consumer price at this quantity supplied.
d)Which of the above policies will minimize the cost to the government?