The market demand for sorghum is given by Qd = 500 – 10Pd, while the market supply curve is given by Qs = 40Ps. The demand and supply curve are shown below. The government would like to increase the income of farmers and is considering two alternative government interventions: an acreage limitation program and a government purchase program.
- What is the equilibrium market price in the absence of government intervention?
- The government’s goal is to increase the price of sorghum to $15 per unit. This is the support price. How much would be demanded at a price of $15 unit? How much would farmers want to supply at a price of $15 per unit? How much would the government need to pay farmers in order for them to voluntarily restrict their output of sorghum to the level demanded at $15 per unit?
- Fill in the following table for the acreage limitation program:
- As an alternative way to support a price of $15, suppose the government purchases the difference between the quantity demanded at a price of $15 and the quantity supplied. How much does the government spend on this price support program?
- Fill in the following table for the government purchases program: