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Price support for grains

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In a country, the demand function for grains is Qd = 28 −3 p, and supply function is Qs = 2p + 3. The government considers implementing a support price of $6 for grains and promises to purchase the extra supply at this price.

a) What is the market equilibrium price and quantity?

b) What is the quantity supplied by the farmers, the quantity demanded by the market, and the quantity purchased by the government?

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Solution Summary

The solution provides detailed steps to calculate the equilibrium price and quantity. It also shows how to estimate the effect of government support on the market equilibrium.

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a) At the market equilibrium, Qd = Qs, that is:
28 - 3p = 2p + 3
5p = 25
P = 5
Substitute this price to the supply curve:
Q ...

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