Question

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?

Answer 1

The government has to buy = 300 chickens

The amount spent on this policy = $900

Step-by-step 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