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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.

Q= ?

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 = ?

Qs= ?

Excess Supply=jQuery22409206957025190958_1581392591964 

Cost = $?

c) Option 2: Quota = 36.

Find the corresponding consumer price at this quantity supplied.

Pconsumers= ?$

d)Which of the above policies will minimize the cost to the government?

Price floor





Top Answer

a.At the equilibrium: Q =50 P= $120 b.Qd= 40... View the full answer

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