Chapter 30 Homework Practice Highlight the correct answer in red, save the docum

Question

Chapter 30 Homework Practice Highlight the correct answer in red, save the document and upload at the appropriate place in your course. Answer questions 1. through 4. by referring to the graph below S5 Price 0 0 100 200 300 400 500 600 700 800 900 1000 Quantity (millions of bushels) 1. If the government establishes a price floor at $5, how many bushels win the government need to purchase? a. 100 million bushels b. 200 million bushels c. 500 million bushels d. None, no surplus will result 2. If the government establishes a price floor at $5. how much will it cost the government to purchase the surplus? a. $250 million b. $500 million c. $1,000 million d. None, no surplus will result 3. If the government establishes a target price at $5, how many bushels will the government need to purchase? a. 100 million bushels b. 200 million bushels C. 500 million bushels d. None, no surplus will result 4. If the government establishes a target price at $5, how much will the total deficiency payment to farmers be? a. $200 million b. $400 million c. $1,400 million d. $2,800 million wuestuons 29 1

Explanation / Answer

1)b After imposing the $5 price floor, the quantity demanded reduced from 600 to 500 but supply increase from 600 to 700 . So there is excess supply 200 units of bushels. The government need to purchase those bushels.

2) c) $1000 million .

P = $5 , surplus = 200 So, 200 * 5 = $1000 million.

3)d) If the government establishes a target price of $5, the market reaches its equilibrium at a price of $3 and a quantity of 600 millions of bushels. There is no surplus (or shortage). For each bushel sold the farmers,the government pays farmers $2. So the government pays a total of 600 * 2 = $1200 . Farmers sell 600 bushels at a cost of $5. In this case government doen not buy anything.

4)a) Target prices are the difference between the actual price of a farm product (such as bushels) and the target price. This is a direct payment method. So acyual price = 3,target price = 5 .

(5-3) * (600-500) = 200

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