Question

Text BOX A1 Question 11: Suppose the total demand for wheat and the total supply of establishes a price ceiling of $3.70 for wheat. What might Explain carefully the main effects. Demonstrate your wheat per month in the Kansas City grain market are as shown in the table below. Suppose that the government prompt the government to establish this price ceiling? answer graphically. Next, Suppose that the government establishes a price floor of $4.60 for wheat. What will the main effects of this price floor? Demonstrate your answer graphically. Price Per Thousands Thousands Bushel of Bushels of Bushels Demanded Supplied 3.4 3.7 4 ЛЗ 85 72 73 75 80 75 70 Print Layout View Sec 1 Pages: 2 of 92% 9

Answer 1

Government establishes a price ceiling in order to ensure that there is no distress selling amongst the producers. This is used to protect the consumers.
A price floor is used to ensure that producers aren't hoarding the grain in order to increase its prices. This is used to protect the consumers and also meant to reduce profiteering amongst the suppliers while ensuring the availability of the food grain to the consumers.

In practice, the equilibrium may fluctuate, setting floors and caps enables that prices are maintained within a range.

Please see the attached. Apologies for the untidy image!