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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 cheesesold. Is there a shortage or surplus of cheese?b. Producers of cheese complain that the price floor has reduced their total revenue. Is this possible? Explain.c. In response to cheese producers' complaints, the government agrees to purchase all the surpluscheese at the price floor. Compared to the basic price floor, who benefits from this new policy? Who loses?
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March 22, 2022
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okay. He didn't have a problem. Supply and demand. So this is the quantity. This is the price. Andi, This'd is the supply line. This is a demand lying. So in this situation, this is the market equilibrium, right? This is going to be your This point is equilibrium point. This is a equilibrium quantity on this is equally beyond price. But now you have the government coming in and putting a floor for the price. Right? People there, floor below the equilibrium price that would not be relevant. That would not be effective. So when they put the floor, that means it's above them. Equilibrium. Price. Right. So this is the price floor above equilibrium, price. And you see what happens here that this price, this is the month that is demanded. And this is demand that is supplied on the supply. Right? So this is cute demand. This is cute supply. And as you see at this price, it is going to be more supply in the market than there's demand. There's this my surplus, right. This is my surplus. And so that's the first question is going to cause a surplus in the market. The other question is that the producers complain that the revenue has dropped right, because now the revenue is going to be the original revenue was this area raid area. Okay, but then the new revenue after the floor is again quantity, times price right, Quantity salts, time price. This is quantity supply, but it's not going to be sold necessarily. This is the quantity which is sold. And Judy, that's the PF price of the floor. So you're gonna have this area, the green area, all right. And the human area could be less than the red area, and that causes the revenue to drop. It was when the price has increased, but the revenue white drop. Okay. And it can happen something to do with the elasticity of this product. And not the third assumption is the government actually comes in and buys the the surplus. And so this
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