solution

The government wants to drive the price of soybeans above the equilibrium price p₁, to p_2. It offers growers a payment of x to reduce their output from Q₁ (the equilibrium level) to Q_2, which is the quantity demanded by consumers at p₂. Show in a figure how large x must be for growers to reduce output to this level. What are the effects of this program on consumers, farmers, and total welfare? Compare this approach to (a) offering a price support of p_{2 ,} (b) offering a price support and a quota set at Q₁, (c) offering a price support and a quota set at Q_2.