Use the following information to answer the next three (3) questions.
In the market for corn, consumers are willing to buy 10 tons of corn for a price of $230 per ton
and farmers are willing to sell 10 tons for a price of $5 per ton. It is also known that consumers
are willing to buy 120 tons for $10 and farmers are willing to sell 120 tons for $60. You are also
told that the demand and the supply curves for corn are linear.
1) Given the above information and holding everything else constant, what is the equilibrium
quantity and equilibrium price of corn?
a) Q = 100 tons of corn and P = $50 per ton of corn
b) Q = 120 tons of corn and P = $60 per ton of corn
c) Q = 90 tons of corn and P = $45 per ton of corn
d) The equilibrium cannot be determined from the given information.
2) The government decides to implement a price support program for corn. The government
implements a price floor of $60. Given this information and holding everything else constant,
what will be the cost of the program to the government? Assume there are no storage costs
associated with this program.
a) $1250
b) $1000
c) $1200
d) $1500
3) Which of the following is true after the price support program has been implemented?
a) Consumers pay more for corn than they did initially, but they also get more corn once the
program is implemented.
b) Total Farmer revenue has increased as a result of the implementation of this program.
c) With the implementation of this program, less corn will be produced.
d) Total Farmer revenue as a result of the program is less than the cost to the government of this
program.
Economics 102 midterm fall2017 - university of Waterloo
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