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Essentials of Economics 7th Edition by Gregory Mankiw
Edition 7ISBN: 978-1285165950Essentials of Economics 7th Edition by Gregory Mankiw
Edition 7ISBN: 978-1285165950 Exercise 3
The government has decided that the free-market price of cheese is too low.
a. Suppose the government imposes a binding price floor in the cheese market. Draw a supply-and-demand diagram to show the effect of this policy on the price of cheese and the quantity of cheese sold. Is there a short-age or surplus of cheese?
b. Farmers complain that the price floor has reduced their total revenue. Is this possible? Explain.
c. In response to farmers' complaints, the government agrees to purchase all of the surplus cheese at the price floor. Compared to the basic price floor, who benefits from this new policy? Who loses?
a. Suppose the government imposes a binding price floor in the cheese market. Draw a supply-and-demand diagram to show the effect of this policy on the price of cheese and the quantity of cheese sold. Is there a short-age or surplus of cheese?
b. Farmers complain that the price floor has reduced their total revenue. Is this possible? Explain.
c. In response to farmers' complaints, the government agrees to purchase all of the surplus cheese at the price floor. Compared to the basic price floor, who benefits from this new policy? Who loses?
Explanation
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(a) The supply and demand diagram below ...
Essentials of Economics 7th Edition by Gregory Mankiw
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