Suppose the market for corn in a country is described by the following demand and supply equations:
Demand: P = 100 - (1/2)Q
Supply: P = 10 + (13/10)Q
Use this information to answer the following set of questions.
a. What is the equilibrium price and quantity in this market? For your answers you may round to the nearest whole number.
b. What is the value of total revenue for farmers in this market? Suppose the government institutes a price support in this market of $80 per unit of corn.
c. Given the price support, how many units of corn will consumers buy?
d. Given the price support, how many units of corn will the government buy?
e. Given the price support, what is the cost to the government of this program if storage costs are $10 per unit of corn stored?
f. Draw a diagram illustrating this price support program. Make sure you label your diagram clearly and completely.
Suppose the government cancels the price support program and, in its place, institutes a price guarantee program where the guaranteed price for corn is $80 per unit of corn.
g. Given the price guarantee, how many units of corn will consumers buy?
h. Given the price guarantee, what is the price per unit of corn that consumers will pay? What is the total expenditure on corn made by consumers?
i. Given the price guarantee, how many units of corn will the government purchase?
j. Given the price guarantee, what is the cost to the government of this program if storage costs are $10 per unit of corn stored?
k. Draw a diagram illustrating this price guarantee program. Make sure you label your diagram clearly and completely.