Question

2. Problems and Applications Q2 The following graph shows the market for dieese. Suppose tho onvernment doides n, movee·nenor market pepan, n thr hoe A pice floor of $3 per pound of cheesebe binding e the orey point (star symbol) to indicate the price of Cheee and the ountty demanded atter theanice Ror of s3 r ound as inplemented The use the green poine (triangle symbol) to indkcate the orkce of cheese and the quandity suppied at the same ann floo Demand Price and Q

Answer 1

We can see that the demand curve and the supply curve of the cheese market intersects at a point. This point is called the equilibrium point. At the point , the price is equilibrium price and the quantity at this point is the equilibrium quantity. We can see that the equilibrium price is $ 5 per pound.

As the price floor implemented is of $3 , which is below the equilibrium price, then we can say that the price floor of $3 per pound of cheese will not be binding. So even after implementing the price floor of $3 per pound of cheese, the equilibrium quantity and equilibrium price remains the same as before.