Question

Suppose that the USDA expects that 53.3 billion bushels of soybeans will be produced this year at a price of $8.50/bushel. Assume that the elasticity of supply is 0.3 and that the elasticity of demand is -0.2 (both very inelastic).

2. What quota is required to increase the soybean price to $9.25/bushel? And what is the economic cost of this solution (i.e., what is the change in producer surplus and change in consumer surplus, and what is the sum of these changes)?

Answer 1

INTRODUCTION:

U.S soybean farmers fund demand and supply enhancing activities to bolster the industry in domestic and international markets.USB promotes grown soybeans inthe areas ofconsumer information,industry data and research.however with the passage of 1990 farm bill, a national mandatory checkoff program was established for U.S soybean producer.

• USB investments in demand enhancing activities have led to 4.2% increase in soybean demand within U.S.
• Continued investments in soybean production research had led to 7.7% increase in soybean supply over the 5 years.
• Collectively, overall net marginal BCR for any of the four USB activities is $12.34.

USB investment in a varierty of activities to accomplish its overall objective of improving the demand for US.soybean and soy products and the efficiency of soybean productium.

• Domestic soybean and soy-product promotion.
• Foreign market development of U.S soybean and soy products.
• Demand enhancing research for soybeans and soy products.

THE ECONOMIC COST :

The costs of additional cleaning of all export soybeans to remove foreign material (FM) beyond the current level would, at minimum, exceed the domestic and international benefits by $20 million per year even if cleaning occurs at the least net-cost locations-river elevators and inland subterminals. Producers and handlers in the South would bear a disproportionate share of the net costs because of higher soybean FM level and larger export share of soybean production than the Corn Belt. Lowering soybean FM by altering production and harvesting practices offers an alternative to mechanical cleaning,but its cost-effectiveness needs to be evaluated more fully before adoption. Despite foreign buyers' preference for clean soybeans, foreign material is regarded as less critical than protein, oil, and moisture contents.