Question

Give Up? Hint Check Answer ignment Score: 2485/3100 Resources ion 23 o1 31 For a number of reasons, governments set price floors for many agricultural products. Assume the government sets a price floor of $3.50 per bushel of corn. Assume a competitive market. Add and adjust the DWL triangle in the accompanying graph to show the deadweight loss due to the price floor. 5 0 4.5 4 0 Supply 、DwL Price floor 3 5 2 5 Demand

Answer 1

Delta ABE represent DWL (dead weight loss due to price floor) Without the price floor the equilibrium price per bushel be $ 25 because at the price supply and demand curve intersect each other it means at this price demand = supply so it is the equilibrium price. With the price floor in place, the amount of surplus is (2 - 1) billion bushels. It is so because at the price floor which is at $ 35, the quantity demanded is 1.0 billion bushels while the quantity supplied at this price is 2.0 billion bushles so surplus is the difference between supply and demand i.e., 1 billion bushles.