Consider the market for wheat, depicted in the figure to the right. Suppose a price floor of p3 is imposed by the government. As a result of the price floor, there is a surplus of wheat. Compared with the market-clearing equilibrium, is the price floor efficient? No . What area represents the loss in efficiency in terms of consumer and producer surplus resulting from the price floor? Use the triangle drawing tool to shade in deadweight loss. Label this shaded area 'Deadweight Loss'. Carefully follow the instructions above, and only draw the required objects.
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A price floor is a government-imposed minimum price that must be paid for a good or service. In this case, the price floor is set at p3 for wheat, which is above the market-clearing price (equilibrium price where supply equals demand). Show more…
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Crystal W.
Refer to the figure below depicting a $10 price floor on the market for wheat. Use this graph for part c through e. Market for Wheat Price (dollars) 13 12 Tools CSpf PSpf 11 Price Floor S 10 DWL 9 8 7 6 D 5 0 1 2 3 4 5 6 7 8 9 10 Tons of Wheat (in thousands) c. Indicate the consumer surplus after the price floor has been implemented. Instructions: Use the tool provided 'CSpf' to shade in the consumer surplus, after the price floor was implimented, on the graph. d. Indicate the producer surplus after the price floor has been implemented. Instructions: Use the tool provided 'PSpf' to shade in the producer surplus, after the price floor was implimented, on the graph. e. Indicate the deadweight loss associated with the price floor. Instructions: Use the tool provided 'DWL' to shade in the deadweight loss on the graph. The value of the deadweight loss here is: $ thousand.
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