Question

1. Explain what will happen if the government establishes a price ceiling of $10 per bushel of wheat in this market? What if the price ceiling was set at $30?

2. Explain what will happen if the government establishes a price floor of $30 per bushel of wheat in this market. What if the price floor was set at $10?

   1.12 The following graph represents the market for wheat. The equilibrium price is $20 per bushel and the equilibrium quantity is 14 million bushels. Price of wheat (bushel) Supply 30 20 10 Demand 4 10 12 14 16 18 20 22 24 26 Quantity of wheat "11 6.

Answer 1

And Poire ceiling is Me manimum price abau ushich eet Mhe price. Con At price 410, price cedling i bindng and, maiket snpply f wheat is 4 miMren bruhels cond Mu le a shartonge of (20-u) = 16 millian brshely. = 16 million AF price $ 30, price ceiling is nat equa priie is below ktzo $ 30, binding omd So, price ceill be fet'at $20 and equ qranfily uell be 14 millien bushes. 8 gounmen price floor is tho minimum e belau which no one price Nhe price n #3 Com set At price floor 430, it binding and at nis price quanily supplied is u millian bnshel and quanbily supplied is 2u millian Mui uwll" ke snrphu of cusheat, At prite floor $10, it R rat binding. ard price ll be et at $20 (i.e at woll be 14 millian egn) whu granbty brshel of uheat.