This chapter explained one of the two main ways that money was transferred to farmers. Another method was called a target price-deficiency payment program. Let's use textbook Figure 2.12 to examine that program as well, although the actual program operated a decade later and with higher prices. In the target price program, the government would set a price that it guaranteed to farmers; $1.78/bu in the example. Instead of buying wheat until the price reached the target price, the government would allow all of it to be purchased by consumers.

(a) Assuming that the producers decide how much wheat to grow based on the supply curve, find the quantity supplied. Now use that quantity and the demand curve to find the price that consumers would pay if they were to buy that much wheat.
(b) The government paid farmers the difference between the target price and the price that consumers paid. Find the amount that the government paid per bushel by subtracting the consumer price from the target price. Now find the total amount the government would have had to pay by multiplying the number of bushels by the government payment per bushel.
(c) Compare your answer from (b) to the government's cost under the loan program. Your comparison should explain why the government never used the target price program without other programs in place to limit production.
(d) Compare the target price-deficiency payment plan to the tax on energy. In both cases, government creates a gap between the price consumers pay and the price producers receive. Does quantity supplied equal quantity demanded under these programs?
(e) To address environmental problems, the government may tax pollution or subsidize a reduction in pollution. Based on what you have seen about a tax compared to a target price-deficiency payment scheme, which do you think that a producer would prefer? Which is more expensive for the government, and why?

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