Question

The market demand function for corn is Q^d = 20 - 2P

The market supply function is Q^s = 5P - 1

both measured in billions of bushels per year. The initial equilibrium price is $3.00, and the initial equilibrium quantity is 14 billion bushels. Consumer surplus is $49.00, producer surplus is $19.60, and aggregate surplus is $68.60. Suppose the government wants to raise the price of corn to $3.50. What are the welfare effects of a price floor, price support, production quota, and voluntary production reduction program?

Instructions: Round quantities to 1 decimal place and prices to 2 decimal places. State the cost to government in absolute value. Fill in the blank for each of the Program below.

Program 1: A price floor

	Amount ($)
Consumer surplus	_____ billion
Producer surplus	_____ billion
Cost to the government	_____ billion
Aggregate surplus	_____ billion
Deadweight loss	_____ billion

Program 2: A price support

	Amount ($)
Consumer surplus	_____ billion
Producer surplus	_____ billion
Cost to the government	_____ billion
Aggregate surplus	_____ billion
Deadweight loss	_____ billion

Program 3: A production quota

	Amount ($)
Consumer surplus	_____ billion
Producer surplus	_____ billion
Cost to the government	_____ billion
Aggregate surplus	_____ billion
Deadweight loss	_____ billion

Program 4: A voluntary production reduction program

	Amount ($)
Consumer surplus	_____ billion
Producer surplus	_____ billion
Cost to the government	_____ billion
Aggregate surplus	_____ billion
Deadweight loss	_____ billion