Consider the product market for "Winter Wheat". If the Government has established a price floor and intends to purchase all surplus wheat draw the likely demand and supply curves and identify the quantity demanded and equilibrium price.
1. Determine the cost to the government to buy all the surplus wheat through a "bumper" crop year.
2. An alternative program will pay farmers to restrict acreage production. Describe how this alternative could result in the same price floor by shifting the appropriate curve.
3. President Obama has proposed massive loan guarantees to a certain war-ravaged Balkan country for the purchase of staples such as agricultural goods. Must either the subsidy or the restriction program be continued?