Some government agricultural policies involve price controls. Other agricultural​policies, however, involve quantity controls. The equilibrium price of wheat is​ $5 and the equilibrium quantity is 100​ bushels, as shown in the diagram on the right. Suppose the government institutes a policy that prohibits wheat farmers from growing more than 60 bushels of wheat in total. How would this policy change the supply curve for​ wheat?Use your supply and demand diagram to show that the government policy would raise the equilibrium price and lower the equilibrium quantity of wheat. Show that the policy will lead to a deadweight loss in the wheat market.​1.) Using the multipoint curve drawing​ tool, graph the supply curve for wheat with the quota. Label your curve​'Upper S2​.'​(Note​:draw the entire supply​ curve) ​2.) Using the point drawingtool​,indicate the market price and quantity with the quota. Label your point​'e 2​. ​3.) Using the triangle drawing​ tool, shade in the deadweight loss from the quota. Label your area​ 'DWL.'Carefully follow the instructions above and only draw the requiredobjects.

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Asked Sep 29, 2019
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Some government agricultural policies involve price controls. Other agricultural​policies, however, involve quantity controls. The equilibrium price of wheat is​ $5 and the equilibrium quantity is 100​ bushels, as shown in the diagram on the right. Suppose the government institutes a policy that prohibits wheat farmers from growing more than 60 bushels of wheat in total. How would this policy change the supply curve for​ wheat?
Use your supply and demand diagram to show that the government policy would raise the equilibrium price and lower the equilibrium quantity of wheat. Show that the policy will lead to a deadweight loss in the wheat market.
​1.) Using the multipoint curve drawing​ tool, graph the supply curve for wheat with the quota. Label your curve
​'Upper S2​.'
​(Note​:
draw the entire supply​ curve)
 
​2.) Using the point drawing
tool​,
indicate the market price and quantity with the quota. Label your point
​'e 2​.
 
​3.) Using the triangle drawing​ tool, shade in the deadweight loss from the quota. Label your area​ 'DWL.'
Carefully follow the instructions above and only draw the required
objects.
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Expert Answer

Step 1

Initially, when the quantity demanded is 100 bushels and price is $5, the intersection of demand and supply equation is shown in the following figure (1).

Here, the consumer surplus is triangle shaded in yellow and the producer surplus is triangle shaded in green.

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Figure 1 Price SS 5 DD Quantity Demanded 100 Figure 1

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Step 2

Now, due to the imposition of quality control by government, the upward sloping SS curve will  become vertical, parallel to Y axis, as shown below in figure (2).

Here, the quantity supplied is restricted to 60 bushels.

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Price Quantity Demanded 60 Figure 2 Ss

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Step 3

Due to fall in quantity from 100 bushels to 60 bushels, the price ...

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sS (after quantity control) Price ,sS (before quantity control) E New Higher Price DD Quantity Demanded 100 60 Figure 3

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