The US government of agriculture is interested in analyzing the domestic market for corn. The USDA staff economist estimates the following equations for the demand and supply Qd=1,600-125P Qd=440+165P Quantities are measured in millions of bushels , prices are measured in dollars per bushel.
1. Calculate the equilibrium price and quantity that will prevail under a completely free market.
2. Calculate the price elasticity of supply and demand at the equilibrium.
3. The government currently has a $4.5 bushel support price in place. 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 surplus? If so how much?