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6 August, 18:06

Imagine the market demand and supply for chicken is such that Qd = 2,000 - 300P and Qs = 800 + 200P. To aid chicken producers, the U. S. government agrees to put a price support on chickens of $3.00 per unit. If this price support goes into effect, how many chickens will the government be forced to buy? How much will the government spend on this policy?

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  1. 6 August, 18:27
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    The government has to buy = 300 chickens

    The amount spent on this policy = $900

    Explanation:

    Data provided in the question:

    Market demand, Qd = 2,000 - 300P

    Supply, Qs = 800 + 200P

    Price support on chickens = $3.00 per unit

    Now,

    At price P = $3.00

    Qd = 2,000 - 300 (3.0)

    or

    ⇒ Qd = 2,000 - 900 = 1,100

    At price P = $3.00

    Qs = 800 + 200 (3.00)

    or

    ⇒ Qs = 800 + 600 = 1,400

    Since, Supply is more than demand, so excess supply will be purchased by government

    Thus,

    The government has to buy = 1400 - 1100 = 300 chickens

    Now,

    The amount spent on this policy = 300 * 3 = $900
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