The market demand and supply curves for an agricultural product are as
follows:
Qd = 4,500 - 250P; Qs = 200P
where quantities are in thousands of bushels per annum and price is in dollars
per bushel.
The government wishes to achieve a higher point on the supply curve than the
initial equilibrium. The desired point would involve both price and quantity
being 10% greater than their initial equilibrium levels. The government is
considering either a subsidy or a support price.
(a) If the subsidy were used, how much would the subsidy per bushel have
to be? What would be the total cost to the government arising from
this subsidy?