Suppose that the government successfully maintains a price P0 for wheat that is above the equilibrium price. At this price, consumers want to purchase Qd bushels of wheat and farmers want to produce Qs. The way that the government maintains the price P0 is by offering farmers a cash reward for limiting their production.
a. By how much must farmers agree to cut back production in order for the program to be successful?
b. Show on a graph the minimum payment that the government must make to farmers in order for them to agree to the deal.
c. Assuming that the government makes this minimum payment, use your graph to show the gains and losses to consumers, producers, and taxpayers from this arrangement. Calculate the deadweight loss.