Problem
The government imposes a binding price floor in the wheat market. Wheat is a grain and has many other substitutes (i.e. other grains such as buckwheat, corn, rice, rye, barley, etc.)
1. Draw a demand and supply graph to show the effect of this policy on the price of wheat and the quantity of wheat sold. Is there a shortage (excess demand) or a surplus (excess supply) of wheat? Explain why.
2. Farmers complain that the price floor reduced their total revenue. Is this possible? Explain.
3. In response to farmers' complaints, the government agrees to purchase all the surplus wheat at the price floor. Who benefits from this policy and who loses? Explain.
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.