Suppose the government gives a guaranteed minimum price for sugar of $.25 cents a pound - and agrees to purchase any surplus which is subsequently destroyed.
Demand and Supply are:
Qd = 200,000 - 350,000P
Qs = 650,000P
What is the change in consumer surplus following this government intervention? The change in producer surplus? Cost to government?
What is the deadweight loss compared to a perfectly competitive market?
Suppose now that the government decides to protect its budget and use production quotas instead.
If they want a price of $0.25 per pound, what should the production quota be?