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.How much wheat goes to waste under the program?
A) 10 billion bushels per year
B) 4 billion bushels per year
C) 6 billion bushels per year
D) None

Question

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.How much wheat goes to waste under the program?
A) 10 billion bushels per year 
B) 4 billion bushels per year 
C) 6 billion bushels per year 
D) None

Quizplus · Accepted Answer

To achieve the goal of a $3/bushel price, the government imposes a price floor at that level. The price floor creates a situation where the quantity supplied exceeds the quantity demanded, leading to a surplus or excess supply.

To find the quantity supplied and demanded at the $3/bushel price floor level, we plug in the price into the supply and demand functions:

Demand: Qd = 11 - P = 11 - 3 = 8 billion bushels per year

Supply: Qs = 2P = 2(3) = 6 billion bushels per year

At the $3/bushel price floor, the quantity supplied (6 billion bushels) is greater than the quantity demanded (8 billion bushels), creating a surplus of 2 billion bushels per year. This means that 2 billion bushels of wheat will go to waste under the program. Therefore, the answer is C) 6 billion bushels per year (since the question asks for the quantity wasted, not the surplus).

The Market Demand Function for Wheat Is and the Market