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 support program to achieve their goal.How much wheat must the government buy?

Quizplus · Accepted Answer

To increase the price of wheat to $3 per bushel, the government needs to impose a price floor at that level. This means that the market price cannot fall below $3. To find the quantity of wheat the government needs to purchase, we need to find where the price floor intersects with the demand and supply curves. The demand function is 10 - 2P = Q^d The supply function is 4P - 2 = Q^s When P = $3, Demand: 10 - 2(3) = 4 billion bushels Supply: 4(3) - 2 = 10 billion bushels Therefore, there is an excess supply of 10 - 4 = 6 billion bushels at the price floor. To fulfill its price support program, the government needs to purchase 6 billion bushels of wheat.

The Market Demand Function for Wheat Is Qd = 10