Why the policy would yield an inefficient outcome

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Reference no: EM131162277 , Length: word count:400

Explain

1. (a) Bagels and cream cheese are often eaten together, so they are complements.

Suppose that the equilibrium price of cream cheese has risen but the equilibrium quantity of bagels has fallen. What could be responsible for this pattern - a rise in the price of flour or a rise in the price of milk?

Illustrate and explain your answer with demand and supply diagram for bagel

2. (b) Suppose the government imposes a price floor on the bagel market to maintain bagel producers' income.

Briefly explain to government why the policy would yield an inefficient outcome. Use the supply and demand model to illustrate your answer.

Reference no: EM131162277

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