The market demand-and-supply functions of oranges are given below. Q refers

to m

The market demand-and-supply functions of oranges are given below. Q refers

to millions of pounds of oranges/month, and p is the price per pound (cents).

Demand: p = 220 – 6Q

Supply: p = 120 + 4Q

(a) What is the market equilibrium quantity and price of oranges?

(b) Suppose the government subsidizes 25 cents/pound to orange consumers. What is the

new equilibrium quantity and price? (Hint: write down the new supply or demand function

first)

(c) At the new equilibrium, what is the price that consumers pay? What is the price that

farmers receive?

(d) What is the percentage of subsidy that consumers receive? What is the percentage of

subsidy that is pass-through to farmers?

(e) Plot all the supply and demand curves in the same graph of (Q, p) space. Label your

horizontal and vertical axis properly. Indicate the direction and the magnitude of shift of any

curves. Label the initial and new equilibriums (i.e., e1, e2), and their respective price and

quantity you found from (a) and (b).

(f) How many million dollars of subsidy that the government gives to farmers? (You should use

the information provided in Part (b); total subsidy = unit subsidy * quantity sold)

(g) Extra credit: Suppose the government subsidizes 25 cents/pound to orange farmers instead.

Repeat the analysis above and show how your answers change in (b), (c), (d) and (f),

respectively.