Use the following table to answer the following questions.
Market for Corn

-What will be the amount of government expenditure required if a price floor for corn is set at $4.50 and the government agrees to purchase the amount of disequilibrium?
A) $202,500
B) $45,000
C) no government payment required
D) $10,000
E) $900,000

Question

Use the following table to answer the following questions.
Market for Corn
 
-What will be the amount of government expenditure required if a price floor for corn is set at $4.50 and the government agrees to purchase the amount of disequilibrium?
A) $202,500 
B) $45,000 
C) no government payment required 
D) $10,000 
E) $900,000

Quizplus · Accepted Answer

If a price floor is set at $4.50, it is above the equilibrium price of $3.50, thus creating a surplus of corn. The amount of disequilibrium is the difference between the quantity supplied at $4.50 (15,000 bushels) and the quantity demanded at $4.50 (5,000 bushels), which is 10,000 bushels. Therefore, the government will need to purchase 10,000 bushels at the price floor of $4.50, which will cost $45,000. Therefore, the correct answer is A) $202,500 which is obtained by multiplying the quantity of disequilibrium (10,000 bushels) by the price floor ($4.50) plus the cost of purchasing the disequilibrium (10,000 bushels x $4.50 = $45,000).

Use the Following Table to Answer the Following Questions