The current competitive market equilibrium price of an agriculturalcommodity is $3.50. Three-hundred (300) units of the commodityare sold at this price. The government has determined that pricetarget of $4.00 would help to stabilize prices and ensure the long-run viability of the industry. At $4.00 producers would supply 400units of the commodity. With 400 units supplied the governmentwould need to provide a price support of $1.67 perunit.What is the value of the change in consumer surplus associatedwith the new policy?What is the value of the change in producer surplus associatedwith the new policy?.What is the net cost (or benefit) associated with the new policy?

The consumer surplus refers to the difference between what a consumer is willing to pay and what…

What is the value of the change in consumer surplus associated with the new policy? What is the value of the change in producer surplus associated with the new policy? . What is the net cost (or benefit) associated with the new policy?

What is the value of the change in consumer surplus associated with the new policy? What is the value of the change in producer surplus associated with the new policy? . What is the net cost (or benefit) associated with the new policy?

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter13: Firms In Competitive Markets

Section: Chapter Questions

Problem 10PA

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Concept explainers

Market Surplus and Shortage Analysis

In everyday language, a “surplus” indicates that there is an excess of something, while a “shortage” means that there is a scarcity of it. In economics, “market surplus” refers to the condition where the quantity of a certain good more available than what is required or “demanded” by the market. In the same way, a “market shortage” refers to the condition where the quantity of a certain good is less available than what is “demanded” by the market. If quantity in demand is written as Qd and quantity that is supplied is written as Qs, then, the condition Qs > Qd indicates market surplus and condition Qd > Qs indicates market shortage.

Question

The current competitive market equilibrium price of an agricultural
commodity is $3.50. Three-hundred (300) units of the commodity
are sold at this price. The government has determined that price
target of $4.00 would help to stabilize prices and ensure the long-
run viability of the industry. At $4.00 producers would supply 400
units of the commodity. With 400 units supplied the government
would need to provide a price support of $1.67 per
unit.
What is the value of the change in consumer surplus associated
with the new policy?
What is the value of the change in producer surplus associated
with the new policy?
.What is the net cost (or benefit) associated with the new policy?

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