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Chapter 4: Q. 4.9 (page 93)

In recent years,the government of Pakistan has

establishedasupport price for wheat of about

$0.20 per kilogram of wheat.At this price,con

sumers are willing to purchase 10 billion kilo

grams of wheat per year,while Pakistani farmers

are willing to grow and harvest 18 billion kilo

grams of wheat per year.The government pur

chases and stores all surplus wheat.

a.What are annual consumer expenditures on the

Pakistani wheat crop?

b.What are annual government expenditures on

the Pakistani wheat crop?

c.How much,in total,do Pakistani wheat farmers

receive for the wheat they produce?

Short Answer

Expert verified

2 billion $

1.6 billion $

3.6 billion $

Step by step solution

01

Step1. Given information

Support price for wheat fixed at $0.2/kg.

Consumers demand 10 billion kgs and farmers grow 18 billion kgs.

02

Step2. Explanation

Any surplus production is purchased by government.

a. Consumer expenditure = Price * quantity demanded= $2 billion

b. Government expenditure= Price * excess supply= $1.6 billion

excess supply= supply - demand (8 billion kgs)

c. Farmers receive income = Price * production

= $3.6 billion

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