Everyone is nuts for nuts! California production of Almonds is perfectly competitive and follows a supply curve of q = p − 15. This is the result of an aggregate MC curve of MC = 15+ q. Almonds from Mexico are supplied by perfectly competitive firms following a supply curve that is perfectly elastic at p = 15 for unlimited quantities. Demand for Almonds in California is set by the demand D(q) = 45 − p. In all cases q is in units of tons.
California has implemented a controversial subsidy that gives free water to local Almond farmers. The subsidy amounts to the equivalent of $15/ton is given only to California growers. Mexican growers complain this distorts an otherwise competitive Almond market.
Part I. What is the market clearing price before the subsidy? The price will be $ .
Part II. How many tons of Almonds do California growers sell before the subsidy? The California quantity will be .
Part III. How many tons of Almonds to California growers sell after getting the $15 per ton subsidy? The California quantity will be .
Part IV. What is the change in consumer surplus that results from the subsidy? The change in consumer surplus is .
Part IV. Calculate the Deadweight loss that results from the Almond subsidy. The Deadweight Loss will be .