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c10competitive markets applications.qxd 7/15/10 4:58 PM Page 435

PROBLEMS 435
10.22. Consider a market with an upward-sloping sup- much would farmers want to supply at a price of $15 per
ply curve and a downward-sloping demand curve. Under unit? How much would the government need to pay
a government purchase program, which of the following farmers in order for them to voluntarily restrict their out-
statements are true, and which are false? put of sorghum to the level demanded at $15 per unit?
(a) The increase in producer surplus will exceed the size
of the government expenditure.
(b) Consumer surplus will increase. 50
(c) The size of the government expenditure will exceed
the size of the deadweight loss.
10.23. The market demand for sorghum is given by
d
d
Q 500 10P , while the market supply curve is given
s
s
by Q 40P . The demand and supply curves are shown
at right. The government would like to increase the in-
come of farmers and is considering two alternative gov-
ernment interventions: an acreage limitation program S
and a government purchase program.
a) What is the equilibrium market price in the absence D
of government intervention? 0 500
b) The government’s goal is to increase the price of
sorghum to $15 per unit. This is the support price. How c) Fill in the following table for the acreage limitation
much would be demanded at a price of $15 unit? How program:

With Acreage
With No Program Limitation Program Impact of Program
Consumer surplus
Producer surplus
Impact on the
government budget
Net benefits (consumer
surplus producer
surplus government
expenditure)
Deadweight loss