Effects of a price floor on agricultural goods

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Reference no: EM132461388

1. Consider the market for corn.

a) Draw the market for corn and be sure to label carefully and completely the axes, curves, and equilibrium price and quantity.

b) If the market for corn were a competitive market, would you expect there to be any deadweight loss?

c) Now, consider the effects of a price floor on agricultural goods (like corn) instituted by the government to protect farmers. Assuming the graph you drew in part a is for a year in which the set price floor would be effective, draw the price floor and the resulting price of corn and quantity that would be sold on your graph from part a. At the resulting price of corn, would there be a shortage or a surplus of corn?

d) On your graph, shade in and clearly label the consumer surplus after the price floor is implemented. Compared to the free-market situation, did the price floor cause consumer surplus to increase, decrease, or stay the same?

e) On your graph, shade in and clearly label the producer surplus after the price floor is implemented. Did the implementation of the price floor create any deadweight loss? If so, shade in the deadweight loss.

Reference no: EM132461388

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