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# American farmers and price supports

For the last 70 years the U.S. government has used price supports to provide income assistance to American farmers. At times the government has used price floors, which it maintains by buying up the surplus farm products. At other times, it has used target prices, a policy by which the government gives the farmer an amount equal to the difference between the market price and the target price for each unit sold. Consider the market for corn depicted in the accompanying figure.

a. If the government sets a price floor of \$5 per bushel, how many bushels of corn are produced?
How many are purchased by consumers?
By the government?
How much does the program cost the government?
How much revenue do corn farmers receive?
b. Suppose the government sets a target price of \$5 per bushel for any quantity supplied up to 1,000 bushels.
How many bushels of corn are purchased by consumers and at what price?
By the government?
How much does the program cost the government?
How much revenue do corn farmers receive?
c. Which of these programs (in parts a and b) costs corn consumers more? Which program costs the government more? Explain.
d. What are the inefficiencies that arise in each of these cases (parts a and b)?

I have try to do this but i am not sure if i am correct
a) how many bushels of corn are produced? 1,200 bushels
How many are purchased by consumers? 1,000
By the government? 200
How much does the program cost the government? \$5
How much revenue do corn farmers receive? \$3

b)How many bushels of corn are purchased by consumers and at what price?
1,000 for the price of \$3
By the government? \$2
How much does the program cost the government? \$5
How much revenue do corn farmers receive? I don't know
c. I don't even know if my numbers are correct
d. I need help

#### Solution Preview

Your first answer to part a is correct. When you follow the supply line out to \$5, you get 1200 on the x axis. However, for the demand curve you didn't do the same thing. At \$5, the demand curve intersects 800 on the x axis. This is the amount purchased by consumers. The difference is what the government has to buy: 400 bushels. The cost to the government is this ...

\$2.19