billion dollars per year (with the December 2021 exchange rate), or roughly 36% of the EU budget, on price

supports for Europe’s farmers.

Figure 3.22 illustrates the effects of a government program that assures a price above the equilibrium by

focusing on the market for wheat in Europe. In the absence of government intervention, the price would adjust
so that the quantity supplied would equal the quantity demanded at the equilibrium point E0, with price P0 and
quantity Q0. However, policies to keep prices high for farmers keep the price above what would have been the
market equilibrium level—the price Pf shown by the dashed horizontal line in the diagram. The result is a

quantity supplied in excess of the quantity demanded (Qd). When quantity supplied exceeds quantity

demanded, a surplus exists.

Economists estimate that the high-income areas of the world, including the United States, Europe, and Japan,
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