b. Suppose the government sets a target price of $5 per bushel for any quantity supplied up to 1,000 bushels. How many bushels of corn are purchased by consumers and at what price? By the government? How much does the program cost the government? How much revenue do corn farmers receive?

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Sidney Huang

12 September, 07:11

b. Suppose the government sets a target price of $5 per bushel for any quantity supplied up to 1,000 bushels. How many bushels of corn are purchased by consumers and at what price? By the government? How much does the program cost the government? How much revenue do corn farmers receive?

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Antoine Dyer · Answer 1

With a price floor of $5, the quantity of corn supplied is 1,200 bushels. The quantity demanded is only 800 bushels: there is a surplus of 400 bushels. The government therefore has to buy up the surplus of 400 bushels, at a price of $5 each: the program costs the government 400 * $5 = $2,000. Corn farmers sell 1,200 bushels (800 to consumers and 400 to the government) and therefore make 1,200 * $5 = $6,000 in revenue. a. With a price floor of $5, the quantity of corn supplied is 1,200 bushels. The quantity demanded is only 800 bushels: there is a surplus of 400 bushels. The government therefore has to buy up the surplus of 400 bushels, at a price of $5 each: the program costs the government 400 * $5 = $2,000. Corn farmers sell 1,200 bushels (800 to consumers and 400 to the government) and therefore make 1,200 * $5 = $6,000 in revenue.