ECON 100 Excess Supply and Demand Answers
St. Charles Community College
ECON 100 Survey Economics
Answers to Class Problem
- Total Income = ($3.00)(400,000) = $1,200,000.
- With the higher price, the growers will grow 600,000 bushels of peanuts. The industry will expand from $1,200,000 to $3,000,000 as the output grows from 400,000 bushels to 600,000 bushels.
- Peanut processing firms will get 150,000 bushels, and the government ends up buying the remainder.
- The demand curve intersects the $5.00 price line at the quantity of 150,000 bushels. Therefore, the processing companies will pay ($5.00)(150,000) = $750,000.
- There is a situation of excess supply. There is a surplus of peanuts being stored somewhere.
- The government can do whatever it wants. The inventory is the government’s peanuts. Hopefully, they will process the peanuts for some sort of aid for low income families or for shipment to nations where general nutrition is a problem.
- As much as they could. Note that the supply curve intersects the $1.00 price line at 150,000 bushels.
- The growers would produce as much as they could (600,000 bushels) and sell that amount at the lower price on the demand curve, $1.00 per bushel. The government will make up the difference with the subsidy.