1. Suppose, to benefit soy farmers harmed by a drop in demand
for soybeans the government was to institute a setting the
minimum price of soy beans at $12 per bushel. Use the graph below
to answer the following questions regarding the price floor.
(a) Prior to the institution of price floor, what was the
equilibrium price of a bushel of soybeans?
(b) Does the institution of a price floor increase or decrease
the quantity of soybeans demanded?
(c) Does the institution of a price floor create a shortage or a
surplus in the market for soybeans?
(d) How many fewer soybeans are sold after the price floor was
put in place than were sold without the price floor?
2. On the two versions of the graph above label consumer
surplus, producer surplus, and dead weight loss (if
applicable).
3. According to this model are the soybean producers as a group
made better or worse off as a result of the price floor? How can
you tell? Does your answer apply to all producers, or are some made
better off and some made worse off? Explain your answer.
1. Suppose, to benefit soy farmers harmed by a drop in demand for soybeans the government was to institute a price floor setting the minimum price of soy beans at $12 per bushel. Use the graph below to answer the following questions regarding the price floor.
WITHOUT PRICE FLOOR Soybean Market
WITH PRICE FLOOR Soybean Market
$20
$20|
Supply
Supply
$16
$16
$8
$8
$4
$4
Demand 20 30 40 Quantity (Thousands of Bushels)
Demand 20_ 30 40 Quantity (Thousands of Bushels)
10
50
10
50
(a) Prior to the institution of price floor, what was the equilibrium price of a bushel of soybeans?
(b) Does the institution of a price floor increase or decrease the quantity of soybeans demanded?
(c) Does the institution of a price floor create a shortage or a surplus in the market for soybeans?
(d) How many fewer soybeans are sold after the price floor was put in place than were sold without the price floor?
2. On the two versions of the graph above label consumer surplus, producer surplus, and dead weight loss (if applicable). 3. According to this model are the soybean producers as a group made better or worse off as a result of the price floor? How can you tell?
answer.