Exercise 1:

With reference to Fig 12, consider the following two farm-aid programs for
wheat farmers.
I. The government sets the price of wheat at P2 and purchases the resulting
surplus of wheat at P2.
II. The government allows wheat to be sold at the equilibrium price of P1
and grants each farmer a cash subsidy of P2-P1 on each unit sold. Which
of the two programs is more expensive to the government?
Sw

Pw
P2

A
E

P
1

Dw

Qw

Exercise 2:

A
B

C C

A
B

Compare type of demand at poits A, B, and C