Use the following information about an agricultural market for cotton to answer this set of questions. The market demand curve for cotton is given by the equation P = 200 – .005Q while the market supply curve is given by the equation P = .005Q where P is the price per bale of cotton and Q is number of bales of cotton.
What is the equilibrium price and quantity in this market?
Suppose cotton farmers successfully lobby the legislature to impose a price floor of $150 per bale of cotton. Based on this information provide the answers to the following questions.
What price will a bale of cotton sell for once the legislature passes the price floor legislation?
How many bales of cotton will be sold to consumers with the imposition of this price floor?
How many bales of cotton will be sold to the government with the imposition of this price floor?
iv. What is the cost to the government of this program assuming that there are no storage costs?
Suppose that instead of a price floor, the legislature imposes a price support program with a guaranteed price of $150 per bale of cotton. Based on this information provide the answers to the following questions.
What price will a bale of cotton sell for to consumers once the legislature passes the price support legislation?
How many bales of cotton will be sold to consumers with the imposition of this price support?
How many bales of cotton will be sold to the government with the imposition of this price support?
What is the cost to the government of this program assuming that there are no storage costs?
In this example the programs described in parts (b) and (c) cost the government the same amount. Is this result always true? Explain your answer carefully.