What are the inefficiencies that arise in each of cases

Reference no: EM13223296

For the last 70 years the U.S. government has used price supports to provide income assistance to American farmers. At times the government has used price floors, which it maintains by buying up the surplus farm products. At other times, it has used target prices, a policy by which the government gives the farmer an amount equal to the difference between the market price and the target price for each unit sold. Consider the market for corn depicted in the accompanying figure.

Price of corn quantity of corn (bushels)
Per bushel demand supply
$5 800 1200
4
3 1000 1000
2
1 1200 800
0

a. If the government sets a price floor of $5 per bushel, what does that mean and how will it affect supply and demand (illustrate on the supply and demand curve below)? How many bushels of corn are produced by the farmer? How many bushels of corn are purchased by consumers and at what price? How many bushels of corn are purchased by the government and at what price? How much does the program cost the government? How much revenue do corn farmers receive?

b. Suppose the government sets a target price of $5 per bushel for any quantity supplied up to 1,000 bushels What does that mean and how will it affect supply and demand (illustrate on the supply and demand curve below)? How many bushels of corn are purchased by consumers and at what price? How many bushels of corn are purchased by the government, if any? How much does the government pay the farmer and at what price? How much revenue do corn farmers receive?

c. Which of these programs (in parts a and b) costs corn consumers more? Explain.
Which program costs the government more? Explain. What are the inefficiencies that arise in each of these cases (parts a and b)?

Reference no: EM13223296

Questions Cloud

What is productivity measure of units of output per dollar : A hamburger factory produces 40,000 hamburgers each week. The equipment used costs $5,000 and will remain productive for 4 years. The labor cost per year is $9,500.

Compute the value of disposable income in macronia : a. Define GDP, giving what items comprise the GDP and then compute the value of GDP in Macronia b. Define net exports and the items that comprise it and compute the value of Net exports in Macronia c. Define disposable income and the items that ..

Why has the joint venture been successful to date : GM entered the Chinese market at a time when demand was very limited. Why? What was the strategic rational?

Which model or models have explanatory power : Do one or more models of the business government- society relationship discussed in chapter 1 apply to the historical era set forth in this case? Which model or models have explanatory power and why?

What are the inefficiencies that arise in each of cases : How many bushels of corn are purchased by consumers and at what price? How many bushels of corn are purchased by the government and at what price? How much does the program cost the government? How much revenue do corn farmers receive.

Why capitalism has changed : Does the story of the American fur company hint at how and why capitalism has changed and has been changed over the years?

Who were the most important stakeholders : Who were the most important stakeholders of the nineteenth century fur industry? Were they treated responsibly by the standards of the day? By the standards of today?

What deep historical forces are implicated in these changes : How did the environment of the American Fur Company change in the 1830s? What deep historical forces are implicated in these changes?

What were the impacts of the fur trade on society : What were the impacts of the fur trade on society in major dimensions of the business environment, that is, economic, culture, technological, natural, government, legal, and internal?

User Account

All Pages