http://homepages.wmich.edu/~mryan/E601/BEApe2.htmlIII. Analytical Problem (15 po

Question

http://homepages.wmich.edu/~mryan/E601/BEApe2.htmlIII. Analytical Problem (15 points) Given the following situation, answer each of the following questions. For each part, circle your final answer. Partial credit will be given. If you need more room, use the back of this page.

1) (2 point) What is the equilibrium price and quantity of bushels of corn for this month in Monroe Count
2) (2 points) Farms are going bankrupt and leaving the business, as they cannot make a living producing at the current equilibrium price. The federal government, concerned over this face, passes legislation stating that prices for bushels of corn cannot fall below $3.75 per bushel. In this new shortage or surplus, and how large is it?
3) (3 points) In (2), if there is a surplus of corn, how can this surplus be eliminated? If the government buys this surplus, how much must it spend to do so?
4) (4 points) Now, instead of the above legislation in part (2), the government now decides to provide a subsidy of $0.50 per bushel to each farmer. What is the new equilibrium quantity of bushels of corn? How much do consumers pay for each bushel in this situation? How much do the farmers receive for each bushel in this situation?
5) (4 points) Under the subsidy in part (4), what is the total government expenditure for this subsidy program?

Explanation / Answer

1) Equilibrium Price is at $3.25 2) Surplus of 200 3) The Surplus can be eliminated by dropping the price down to $3.00 until it is gone. And the government would be spending $750 to buy the surplus 4) New Equilibrium Price is at $2.75, Consumers pay $2.75, Farmers Receive $3.25 5) Government Expenditures = $500

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