Answer to Question #241951 in Microeconomics for tommy

Question

In Joseph Heller’s iconic novel, catch 22, one of the characters was paid by the government to not grow alfalfa. According to the story’s narrator, “The more alfalfa he did not grow, the more money the government gave him, and he spent every penny he didn’t earn on new land to increase the amount of alfalfa he did not produce.”

Answer 1

Solution:

This will result in a shock on the demand and supply curve for the Alfalfa market since will be expecting plenty of Alfalfa harvest being produced to be supplied to the market only for them to get reduced supplies because one of the producers was being paid by the government not to grow them.

 

The shock is displayed by the below diagram, which is shown by the movement from E₀ to E₁. The demand for alfalfa will increase due to the shock resulting in an increase in its price.