ECON 100 Excess Supply and Demand Questions

St. Charles Community College 
ECON 100   Survey Economics 
Class Problem

Peanuts have been a major crop in this country.  Consider the following diagram which shows the market for fresh peanuts. Assume that all peanuts are sold to peanut processing plants, and the quantity shown is in thousands of bushels.

 

  1. Calculate the total equilibrium income for peanut farmers.
  2. Suppose that this income level is felt to be inadequate, and that a political decision is made to boost the farm income of peanut farmers to $3,000,000.  Suppose the government establishes a price floor at $5.00, with the government buying the excess supply,  How many bushels of peanuts will be supplied?  What has happened to the size of the industry?
  3. At the new flooring price, who will get the peanuts?
  4. At the new flooring price, how much will peanut processing companies pay?
  5. Assume that the plan achieves the income objectives set by the government.  What has it done in the peanut marketplace?
  6. What can the government do with the surplus peanuts?
  7. If the government were to change its mind and impose a ceiling price of $1.00 per bushel, how many bushels could the peanut processing companies buy?
  8. If the government were to change its mind again and tell the farmers that they could charge what ever the market will bear with the government providing a $4.00 bushel subsidy, How many bushels of peanuts would the farmers produce?  How many bushels would the peanut processing plants buy?