The US Farm Bill 2012 indicates that the domestic price of wheat will be maintained at $350 per tonne, which is above the market equilibrium level of $300 per tonne, in order to support for domestic wheat growers. At the market equilibrium, 100 tonnes are supplied.
(a) Is the wheat price control in the US a price floor or a price ceiling? (1 mark)
(b) On a graph, show and explain if the price control in the US creates a shortage or a surplus in the market for wheat. Assume that the US does not trade wheat internationally. (2 marks)
(c) Show on a graph and explain how the price control in the US changes consumer surplus, producer surplus, and deadweight loss in the domestic wheat market.