The US market of rice is described by the following domestic supply and demand equations: QdUS = 200 – 2 P , QsUS = -100 + 3 P where QdUS and QsUS represent the quantities demanded and supplied (in millions of tons) and P is the price per ton of rice (in hundreds of $).
a) What is the market equilibrium price of rice? How much rice is sold at this price (what is the market equilibrium quantity)? At this market price, what are revenues for rice producers?
b) Now suppose that the US government wants to support US farmers’ incomes using a price floor. Assume that the US government buys the surplus. If the price floor is 80, how much rice are US consumers buying? How much is the surplus? If the US government buys the surplus, what would be the cost of purchasing it? What would revenues be for rice growers?
c) But the US not only produces but also imports rice. Now assume that foreigners are allowed to sell rice in the US. Assume that the foreign supply equation is QsF = - 200 + 5 P What would be the new equilibrium price of rice in the US when rice imports are allowed? Draw in only ONE graph the equilibrium situation before and after rice imports.
d) At this new equilibrium price, how much rice will US farmers produce? How much will be consumed and how much will be purchased from abroad? Show your work.