Question: Suppose demand is P 600 Q and supply

Suppose demand is P = 600 - Q and supply is P = Q in the soybean market, where Q is tons of soybeans per year. The government sets a price support at P = $500/ton and purchases any excess supply at this price. In response, as a long- run adjustment, farmers switch their crops from corn to soybeans, expanding supply to P = (1/2) Q.
a. How does excess supply with the larger supply compare to excess supply prior to the farmers switching crops?
b. How much more does the government have to spend to buy up the excess supply?

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  • CreatedDecember 12, 2014
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