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Chapter 4: Q. 4.10 (page 93)

Consider the information in Problem 4-9 and your

answers to that question.Suppose that the market

clearing price of Pakistani wheat in the absence of

price supports is equal to$0.10 per kilogram.At

this price,the quantity of wheat demanded is 12

billion kilograms.Under the government wheat

price-support program,how much more is spent

each year on wheat harvested in Pakistan than oth

erwise would have been spent in an unregulated

market for Pakistani wheat?

Short Answer

Expert verified

$1 billion.

Step by step solution

01

Step1. Given information

Market clearing price= $0.1/ kg

Quantity demanded= 12 billions kgs

02

Step2. Explanation

Since the supply corresponding to $0.1/kg is not given, let us assume it is same as before, i.e., 18 billion kgs.

People demand 12 billion kgs.

Excess supply= 6 billion kgs.

Government will purchase this at $0.1= spent= $0.6 billions

Government initially spent $1.6 billions

Increased spending= $1 billions.

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