Answer the question based on the following supply and demand schedules in units per week for a product. If the government introduced a guaranteed price floor of $40 and agreed to purchase surplus output, then the government's total support payments to producers would be

Question

Answer the question based on the following supply and demand schedules in units per week for a product.  If the government introduced a guaranteed price floor of $40 and agreed to purchase surplus output, then the government's total support payments to producers would be

Quizplus · Accepted Answer

To determine the total support payments to producers, we need to first find the equilibrium price and quantity without the price floor. From the supply and demand schedules, the equilibrium price is $30 and the quantity exchanged is 300 units per week.

Since the government introduced a guaranteed price floor of $40, there will now be a surplus of 200 units per week (500 units supplied - 300 units demanded). The government has agreed to purchase the surplus output, which means they will buy 200 units per week from the producers.

The total support payments to producers would be the difference between the market price and the guaranteed price floor multiplied by the quantity purchased by the government.

($40 - $30) x 200 units = $2,000 per week

Therefore, the total support payments to producers would be $4,000 per week (since there are two producers in this example), making answer choice C the correct choice.

Answer the Question Based on the Following Supply and Demand