Suppose the demand function for corn is Qd = 10-2p, and supply function is Qs =...

Suppose the demand function for corn is Qd = 10-2p, and supply function is Qs = 3p-5. The government is concerned that the market equilibrium price of corn is too low and would like to implement a price support policy to protect the farmers. By implementing the price support policy, the government sets a support price and purchases the extra supply at the support price and then gives it away to the consumers free. The government sets the support price ps = 4.

A. Calculate the original market equilibrium price and quantity in absence of the price support policy. How much is the consumer surplus, producer surplus, and total surplus.

B. How much is the consumer surplus, producer surplus, government surplus, and total surplus WITH the policy? How much is the deadweight loss? Calculate and show diagram.

Expert Solution

Rahul Sunny answered 2 years ago

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