Market price of rice on low-income households

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Question 1

Consider an economy where rice is the staple food and the rice market is perfectly competitive. Initially the consumers paid the market equilibrium price for rice.

(a) Using a diagram for the rice market, analyse the market equilibrium, the consumer surplus and the producer surplus. Your diagram needs to have a proper shape of the demand and supply curve that correctly reflects the demand and supply elasticities.

(b) Analyse the possible impacts of the market price of rice on low-income households. What policies could the government implement to rectify the possible negative impacts? You need to suggest at least three different policies, explain how each policy works and discuss the pros and cons of these policies.

Reference no: EM132617993

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