Much of the demand for U.S. agricultural output has come from other countries. From Example 2.4, total demand is Q = 3244 - 283P. In addition, we are told that domestic demand is
QD = 1700 - 107P.
Domestic supply is Qs = 1944 + 207P. Suppose the export demand for wheat falls by 40 percent.
a. US. farmers are concerned about this drop in export demand. What happens to the free-market price of wheat in the United States? Do the farmers have much reason to worry?
b. Now, suppose the U.s. government wants to buy enough wheat to raise the price to $350 per bushel With this drop in export demand, how much wheat would the government have to buy? How much would this cost the government?