Question

4·Suppose that you are the economic advisor to a local gov- ernment that has to deal with a politically embarrassing sur- plus that was caused by a price floor that the government recently imposed. Your first suggestion is to get rid of the price floor, but the politicians don't want to do that. Instead, they present you with the following list of options that they hope will get rid of the surplus while keeping the price floor. Identify each one as either could work or can't work. LO3.7 a. Restricting supply. b. Decreasing demand. c. Purchasing the surplus at the floor price. 5. Suppose both the demand for olives and the supply of olives at decline by equal amounts over some time period. Use graphical analysis to show the effect on equilibrium price and quantity. LO3.7 st 6. Governments can use subsidies to increase demand. For instance, a government can pay farmers to use fertilizers rather than traditional fertilizers. That subsidy increases the demand for organic fertilizer. Consider two industries, one in which supply is nearly vertical and the other in which supply is nearly horizontal. Assume that firms in both industries would prefer a higher market equi- librium price because a higher market equilibrium price would mean higher profits. Which industry would probably spend more resources lobbying the government to increase the demand for its output? (Assume that both industries have similarly sloped demand curves.) LO3.7 a. The industry with a nearly flat supply curve. b. The industry with a nearly vertical supply curve. n- b- be ng

Answer 1

Price floor refers to the minimum price a seller can be paid for his supply of commodities. This is imposed by the government to stop the falling tendency of price: this is also known as supporting price. In the event that the value floor for a war is over the balance value, it prompts decline popular. Then again, the merchants can move the ware over the market cost. This will encourage the seller to supply more. Ultimately, the price floor leads to surplus in the market. a) Restricting supply: The surplus in the market happened because of an overabundance supply that is supply surpasses the interest. At the point when the administration confines the supply of merchandise equivalent to surplus in the market, at that point it could diminish the surplus in the market. Hence, the option of restricting supply could eliminate the surplus from the market. B) Decreasing demand: The surplus in the market occurred