A-LevelEconomicsGovernment microeconomic intervention9708/12 · Feb/Mar 2021 · Q121 Mark
The market for wheat is in equilibrium at price P with supply at 40 million tonnes. Due to a drought in the growing season, supply falls to 20 million tonnes. [diagram] Which immediate action should be taken to maintain the equilibrium price of P?
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Agrant a subsidy to farmers equivalent to PP1
Bimpose an indirect tax equivalent to PP2
Cplant more wheat to increase supplies to 40 million tonnes
Duse existing stocks of wheat to increase supplies by 20 million tonnes
✓ Correct answer
D: use existing stocks of wheat to increase supplies by 20 million tonnes
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