Assignment: Distribution of Costs and Benefits
Suppose that the government decides to guarantee an above-market price for a good by buying up any surplus at that above-market price. Using a conventional supply-demand diagram, illustrate the following gains and
a. The loss of consumer surplus
b. The gain of producer surplus in the short run
c. The cost of running the government program (assuming no storage costs)
What is the total cost of the program to consumers? Are the costs and benefits of the support program widespread or concentrated?
