The market demand function for wheat is Q^d = 10

Question

The market demand function for wheat is Q^d = 10 - 2P and the market supply function is Q^s = 4P - 2,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.How much wheat goes to waste under the program?

Quizplus · Accepted Answer

To impose a price floor of $3/bushel, the government sets a minimum price that wheat producers must receive for their product. This means that the price cannot fall below $3/bushel. To find out how much wheat goes to waste under the program, we need to compare the quantity demanded and supplied at the new price level ($3/bushel). At $3/bushel, the quantity demanded is: Q^d = 10 - 2P Q^d = 10 - 2(3) Q^d = 4 billion bushels per year At $3/bushel, the quantity supplied is: Q^s = 4P - 2 Q^s = 4(3) - 2 Q^s = 10 billion bushels per year We can see that at $3/bushel, there is an excess supply of 6 billion bushels per year (10 - 4 = 6). This means that 6 billion bushels of wheat will go to waste under the program. Therefore, the answer is C.

The Market Demand Function for Wheat Is Qd = 10