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Suppose the schedule below depicts the demand and supply for bushels of corn in Monroe County, Indiana in October, 1997
Suppose the schedule below depicts the demand and supply for bushels of corn in Monroe County, Indiana in October, 1997. (15 Marks)
|
Price ($) |
Quantity Demanded |
Quantity Supplied |
|
4 |
850 |
115 |
|
3.75 |
900 |
1100 |
|
3.50 |
950 |
1050 |
|
3.25 |
1000 |
1000 |
|
3.00 |
1050 |
950 |
|
2.75 |
1100 |
900 |
|
2.50 |
1150 |
850 |
- Now, instead of the above legislation in part (b), the government now decides to provide a subsidy of $0.50 per bushel to each farmer. What is the new equilibrium quantity of bushels of corn? How much do consumers pay for each bushel in this situation? How much do the farmers receive for each bushel in this situation?
- Under the subsidy in part (d), what is the total government expenditure for this subsidy program?
Expert Solution
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Solution,
1). due to government subsidy, the price of quantity supplied is increased by subsidy amount i.e. 0.50
the new schedule is given below.
| Price | Quantity Demanded | Quantity Supplied |
| 4 | 850 | 1050 |
| 3.75 | 900 | 1000 |
| 3.5 | 950 | 950 |
| 3.25 | 1000 | 900 |
| 3 | 1050 | 850 |
the equilibrium condition is demand equal to supply.
Equilibrium Quantity is 950 and Price is 3.5.
3.5 farmer receive for each bushel.
2). the total quantity is 950 and subsidy is 0.50.
Government expenditure = 950*0.50 = 475
Government Spending = 475.
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