The market demand function for corn is Qd = 15 − 2P and the market supply function is Qs = 5P − 6, both measured in billions of bushels per year. Suppose the government wants to raise the price to $4 per bushel. A supply-demand graph (like Figure 15.11) would help answer the questions below.
(a) What are the equilibrium price and quantity without any intervention? What would be the welfare consequences (i.e. what are the aggregate surplus, dead- weight loss, consumer surplus, producer surplus, and government revenue)?
(b) What are the equilibrium price and quantity if the government raises the price to $4 per bushel?
(c) Describe how the government can raise the price to $4 per bushel with a price floor. What would be the welfare consequences (i.e. what are the changes in aggregate surplus, deadweight loss, consumer surplus, producer surplus, and gov- ernment revenue)?
(d) Describe how the government can raise the price to $4 per bushel with a price support program. What would be the welfare consequences (i.e. what are the changes in aggregate surplus, deadweight loss, consumer surplus, producer surplus, and government revenue)?
(e) Describe how the government can raise the price to $4 per bushel with a quota. What would be the welfare consequences (i.e. what are the changes in aggregate surplus, deadweight loss, consumer surplus, producer surplus, and government revenue)?
(f) Describe how the government can raise the price to $4 per bushel with a vol- untary production reduction program. What would be the welfare conse- quences (i.e. what are the changes in aggregate surplus, deadweight loss, consumer surplus, producer surplus, and government revenue)?