Market Microeconomics Principles
Setting the price of wheat by $300 per ton will result in a surplus in the market. Given that the price will be above the equilibrium of $250, more farmers will turn to supplying it to the traders in the market. On the other hand, the high price will result in a decrease in demand on the part of the consumers (Boundless 1). Therefore, the disparity in the amount supplied and that demand will lead to a surplus of wheat in the market. At $300, the wheat supplied is 1200 kilotons and that demanded is 800-kilo tons. Therefore, there will be a surplus of 400-kilo tons of wheat in the market. It translates to 400,000 tons of wheat.
The price control will result in a decrease in consumer surplus, an increase in the consumer surplus, and an increase in the deadweight loss. The demand in quantity will automatically decrease due to the increase of the wheat prices. Additionally, the producer surplus will increase because of an increase in the quantity of wheat supplied to the market. The consumer surplus will decrease by 200-kilo tons which are equivalent to 200,000 tons. The producer surplus will be the difference between the quantity demanded, and the amount supplied that is 400-kilo tons. Converting 400-kilo tons to tons makes it 400,000 tons. The deadweight loss results from the difference between the equilibrium price and that which the marginal demander wants to pay. In this case, it is $300 minus $200 hence; the deadweight loss is $100.
The outcome of the US Farm Bill is not fair because it results in some effects that are not beneficial to the market. The bill is likely to lead to an increase in the supply of wheat in the market. The Bill will maintain their operations of supplying the wheat (Berman 1). Companies or individuals that purchase the wheat will be able to find it readily but at a higher price. The high price of wheat will result in a high price for products made from it such as biscuits and cakes. In this case, the farmers will benefit from the Bill due to a high price of wheat.
Another effect of the US Farm Bill will be a decrease in the demand for wheat. The Bill will set the price above the equilibrium price making it expensive for the customers. Fewer customers will be interested in purchasing the product because of its high price (Berman 1). The high production by the farmers will lead to a surplus of the product. The individuals who will suffer from this are the traders in the market. They will have fewer sales due to the high wheat prices. The decrease in sales will result in poor profits on the part of the traders which is not fair.
The Bill will also force the government to intervene in the long run. The high price of wheat will result in an increase in its supply in the market. Producer surplus means that the producers will have to reduce their prices to increase consumer demand so as to clear the stock. However, it would be illegal to do so forcing the government to intervene and purchase the wheat (Berman 1). Once it has purchased, the government may be compelled to distribute the wheat to public entities and poor people. Therefore, it results in unwanted expenditure.
Berman, Craig. “What Happens When a Government Imposes a Price Floor?” Chron. n.d. Web.
6 May 2016.
Boundless. “Price Ceiling Impact on Market Outcome.” Boundless Economics, 8 Aug. 2016.
Web. 6 May 2016.
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