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The U. S. Department of Agriculture is interested in analyzing the domestic market for corn. The USDA's staff economists estimate the following equations for the demand and supply curves: QD = 1,600 - 125P QS = 440 + 165P Quantities are measured in millions of bushels; prices are measured in dollars per bushel.
a. Calculate the equilibrium price and quantity that will prevail under a completely free market.
b. Calculate the price elasticities of supply and demand at the equilibrium values.
c. The government currently has a $4.50 per bushel support price in place (a price floor). What impact will this support price have on the market? Will the government be forced to purchase corn under a program that requires them to buy up any surpluses? If so, how much?
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