Question 1

The market demand function for wheat is  and the market supply function is  ,both measured in billions of bushels per year.Suppose the government wants to increase the price of wheat to $3/bushel and they impose a voluntary production reduction program to achieve their goal.What is the size of the aggregate surplus?

Accepted Answer

To increase the price of wheat to $3/bushel, we need to find the quantity of wheat that will be supplied at that price, which can be found by equating the market supply function to 3. 
3 = -2 + 0.5Qs 
Qs = 10

So, the government needs to reduce the supply to 10 billion bushels per year. Let's find the equilibrium price and quantity before the voluntary production reduction program.

Setting the market demand equation and market supply equation equal to each other: 
-2 + 0.5Q = 20 - 2P 
2P + 0.5Q = 22 
P = 11 - 0.25Q 
Substituting Q = 20 into the price equation: 
P = 6

So, the original equilibrium price is $6/bushel and the equilibrium quantity is 20 billion bushels per year.

After the voluntary production reduction program, the supply curve will shift to the left to the quantity of 10 billion bushels per year. The new equilibrium price can be found by setting the new quantity supplied equal to the market demand equation:

3 = -2 + 0.5Qd 
Qd = 10

Substituting Qd = 10 into the price equation:

P = 8

So, the new equilibrium price is $8/bushel and the equilibrium quantity is 10 billion bushels per year.

The aggregate surplus before the voluntary production reduction program can be found by calculating the area of the triangle formed by the price, quantity, and demand curves: 
(20-6) * (20-0) * 0.5 = $140 billion

The aggregate surplus after the voluntary production reduction program can be found by calculating the area of the triangle formed by the price, quantity, and demand curves: 
(10-8) * (10-0) * 0.5 = $4 billion

Therefore, the size of the aggregate surplus after the voluntary production reduction program is $4 billion.

Question 2

The market demand function for wheat is  and the market supply function is  ,both measured in billions of bushels per year.Suppose the government wants to increase the price of wheat to $3/bushel and they impose a price floor to achieve their goal.What is the size of the aggregate surplus?

Accepted Answer

The answer of The market demand function for wheat is...

Question 3

Suppose the government wants to increase the price of a specific agricultural product.Discuss the welfare effects of four possible policies: price floor,price support,production quota and voluntary production reduction.Which policy is least efficient? Discuss the differences in the benefits to farmers and the cost to the government.

Accepted Answer

The answer of Suppose the government wants to increase the...

Question 4

If the import supply curve is upward sloping

Accepted Answer

If the import supply curve is upward sloping, it means that as the quantity of imports increases, the price of imports also increases. In this case, both a tariff and a quota would reduce the quantity of imports and increase their domestic price. This would lead to an increase in domestic aggregate surplus due to a reduction in imports and an increase in the domestic price of the imported good. Therefore, both A and B are correct.

Question 5

The market demand function for wheat is  and the market supply function is  ,both measured in billions of bushels per year.Suppose the government wants to increase the price of wheat to $3/bushel and they impose a voluntary production reduction program to achieve their goal.What is the size of the consumer surplus?

Accepted Answer

The answer of The market demand function for wheat is...

Question 6

If the import supply curve is horizontal at the world price

Accepted Answer

A tariff on imports, when the import supply curve is horizontal at the world price, will lower domestic aggregate surplus because it increases the price of imported goods, leading to a decrease in consumer surplus and an inefficient allocation of resources.

Question 7

The market demand function for wheat is  and the market supply function is  ,both measured in billions of bushels per year.Suppose the government wants to increase the price of wheat to $3/bushel and they impose a price floor to achieve their goal.What is the size of the consumer surplus?

Accepted Answer

To find the consumer surplus, we need to calculate the area under the demand curve but above the equilibrium price (which is $2/bushel without the price floor). With the price floor of $3/bushel, the quantity demanded will decrease to 16 billion bushels per year, while the quantity supplied will increase to 24 billion bushels per year.

The new consumer surplus will be equal to: 
0.5 x (11-3) x 16 billion = $4 billion

Therefore, the correct answer is A) $4 billion.

Question 8

A tariff

Accepted Answer

A tariff is a tax on imports, which means it increases the cost of importing goods into a country, making them more expensive for consumers. This is done to protect domestic industries and promote local production by making imported goods less attractive. It is different from an export tax which is a tax on goods leaving a country. Tariffs do not directly limit the total quantity of goods that can be imported, but they may indirectly do so if the increased cost of imports reduces demand for those goods.

Question 9

Discuss why the government would implement a program to lower the price of a good and the welfare effects of such a program.Give an example of good for which such a policy has been implemented and explain the purpose of the policy.

Accepted Answer

The answer of Discuss why the government would implement a...

Question 10

The market demand function for wheat is  and the market supply function is  ,both measured in billions of bushels per year.Suppose the government wants to increase the price of wheat to $3/bushel and they impose a price floor to achieve their goal.What is the size of the producer surplus?

Accepted Answer

The answer of The market demand function for wheat is...

Question 11

A quota

Accepted Answer

A quota is a restriction on the quantity of a good that can be imported into a country. It is typically imposed for protectionist reasons and is often used to limit competition from foreign producers. It is not a tax on imports or exports, although it can have a similar effect by making imports more expensive and less competitive. Similarly, it does not directly limit exports, although it may indirectly affect them by reducing demand for domestic goods in foreign markets.

Question 12

Domestic aggregate surplus

Accepted Answer

Domestic aggregate surplus is the total surplus (benefit) received by consumers and producers in a domestic market. It is the sum of consumer surplus, domestic producer surplus and government revenue. Therefore, option D is the correct choice as it includes all three components.

Quiz 15: Market Intervention

The market demand function for wheat is and the market supply function is ,both measured in billions of bushels per year.Suppose the government wants to increase the price of wheat to $3/bushel and they impose a price floor to achieve their goal.What is the size of the aggregate surplus?

If the import supply curve is upward sloping

If the import supply curve is horizontal at the world price

The market demand function for wheat is and the market supply function is ,both measured in billions of bushels per year.Suppose the government wants to increase the price of wheat to $3/bushel and they impose a price floor to achieve their goal.What is the size of the consumer surplus?

A tariff

Discuss why the government would implement a program to lower the price of a good and the welfare effects of such a program.Give an example of good for which such a policy has been implemented and explain the purpose of the policy.

The market demand function for wheat is and the market supply function is ,both measured in billions of bushels per year.Suppose the government wants to increase the price of wheat to $3/bushel and they impose a price floor to achieve their goal.What is the size of the producer surplus?

A quota

Domestic aggregate surplus