Consider the product market for \"Winter Wheat\". if the Governmet has establish

Question

Consider the product market for "Winter Wheat". if the Governmet has established a price floor and intends to pruchase all surplus wheat draw the probable demand and supply curves and identify the equilibrium price and quantity demanded.

A) determine the cost to the goverment to buy all the surplus wheat during a "bumper" crop year.

B) An alternative program will pay farmers to restrict acreage prodiction. Explain how this alternative could result in the same price floor by shifting the appropriate curve.

C) President Obama has proposed massive loan guarantee's to a certain war-ravaged Balkan country for the pruchase of staples such as agricultural goods. Should either the subsidy or the restriction program be continued?

Explanation / Answer

a)I'm afraid Eric is a bit behind times. There are no 1950-70s style "set aside" subsidy programs where farmers are paid a set amount in return for not planting a portion of their cropland. Begining with the 1985 Farm Bill, the conservation reserve program (CRP) began. It's purpose was to convert farmland that was experiencing high rates of soil erosion into grassland that would greatly decrease erosion. A positive side effect was to decrease the amount of surplus grain on the market, thus increasing grain prices somewhat. A negative side effect was that many small grain buyers (elevators and co-ops) and sellers of seed and fertilizer went out of business. The last couple of farm bills have retained a downsized CRP program, which was supported by wildlife groups more than anyone else, including farmers.

Incidently, there has been no grain intentionally burned since the 1930s depression days. There was no grain surplus during WWII (actually a shortage), there was surplus after WWII when nitrate production was changed from explosives to fertilizer, greatly increasing yields. In order to stabilize prices at low prices and to ensure the cheap food policy pushed by the federal government, the government built many thousands of grain bins, buying grain to fill them in bumper crop years, which raised extremely low prices and selling grain on the market in short crop years, keeping prices low. This was the same time the set aside programs began. The government got out of the grain manipulation business during the 1960s (my dad bought two of the bins at auction, still have them).

And most starvation in the world is political and is used as a formof genecide

The amount of the surplus would be the difference between the quantity supplied and the quantity demanded, or Qs minus Qd above. I'm assuming that the price the government pays to purchase the surplus will be the same as the price floor, the question doesn't make that clear. The cost to the government to buy all of this surplus would be Pf times (Qs minus Qd). However, the question states that it is for a "bumper" crop; this may mean that they want you to consider the above graph to indicate a "normal" crop, and do this analysis for a different, "bumper" crop. I'm not sure if that is what they want you to do, but if it is you would have to first shift the supply curve to the right before drawing the extra lines and making labels.

(b) For this, you need to start over, with a standard demand / supply graph, and show the effects of a leftward shift in the supply curve. This will not involve a price floor line; you would have an initial equilibrium, you can use P1 and Q1 to label the associated price and quantity. Then after the leftward shift in the supply curve, you would have a new equilibrium where this crosses the demand curve. Label the associated price and quantity P2 and Q2. You will note that the new price is higher than the old price, which could be the same as the price floor in (a). But because there is no surplus for the government to purchase, the overall quantity will be lower than it would with the surplus being bought.

c)

WASHINGTON - President Obama next week will announce a loan guarantee to build the first nuclear power plant in the United States in almost three decades, an administration official said yesterday.

The two new Southern Co. reactors to be built in Burke, Ga., are part of a White House energy plan that administration officials hope will draw Republican support. Obama

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