In: Economics
a) Since supply is perfectly inelastic in the short run , the supply function will not shift due to subsidy being provided. Demanders will continue to keep paying the same price level i.e $4 per bushel
b) Suppliers on the other hand will get the full benefir by getting price paid by consumers + subsiy per bushel i.e $4 + $1 = $5 per bushel
c) Producer surplus of farmers will increase
d) Cost to the government = 1 x 13 million = $13 million
e) In the long run , as producers will get $1 subsidy and supply is perfectly elastic , they will increase supply which will bring all the benefit to the consumers and price consumers pay will come down to $3
f) Producers will keep on getting $4 per bushel ($3 consumers pay + $1 of subsidy)
g) Producers surplus in the long run will remain 0 , as in the long run producers get 0 profit.
h)