Suppose that the market for corn is initially in equilibrium and is perfectly competitive. The demand curve can be expressed as $P = 10 - Q ^ { d }$; the supply curve can be expressed as $P =$ $0.25 Q ^ { s }$. Quantity is expressed in millions of bushels. Now suppose that the federal government imposes a price floor of $\$ 3$ per bushel of corn. Which of the following best describes the market after the price floor is imposed?
A) There will be a shortage of 5 million bushels.
B) There will be a surplus of 5 million bushels.
C) There will be a surplus of 7 million bushels.
D) There will be a surplus of 12 million bushels.

Question

Quizplus · Accepted Answer

The price floor of $\$3$ per bushel is above the equilibrium price, so there will be a surplus of corn in the market. To find the new quantity, we set the price floor equal to the supply curve:
$$3 = 0.25Q^s$$
$$Q^s = 12$$
To find the new quantity demanded, we set the price floor equal to the demand curve:
$$3 = 10-Q^d$$
$$Q^d = 7$$
Thus, there will be a surplus of:
$$Q^s-Q^d=12-7=5$$
million bushels.

Suppose That the Market for Corn Is Initially in Equilibrium P=10−QdP = 10 - Q ^ { d }P=10−Qd

Suppose That the Market for Corn Is Initially in Equilibrium $P = 10 - Q ^ { d }$