Assume that last year’s demand for American cotton was Q = 3221-268P, expressed in tons. Of this, total domestic demand was QD= 1677-92P, while the rest was export demand. Domestic supply was QS= 1907+ 192P. Now assume that the export demand for cotton falls by 30 percent because of supply chain disruptions. Suppose the government wants to raise the price of cotton to $3.20 per ton to protect farmers. Given the drop in export demand, how much surplus cotton would the government have to buy? How much would this cost the government?

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The government would have to buy 320000 tons of cotton at ... View the full answer