Question

Problems & Applications (Ch 06) 

The following graph shows the market for cheese. Suppose the government decides to impose a price floor of $3 per pound in the cheese market. 

A price floor of $3 per pound of cheese _______ be binding 

Use the grey point (star symbol) to indicate the price of cheese and the quantity demanded after the price floor of $3 per pound is implemented. Then use the green point (triangle symbol) to indicate the price of cheese and the quantity supplied at the same price floor. 

With a price floor of $3 per pound of cheese, there will be _______  of cheese. 

True or False: The price floor of $3 per pound of cheese reduces the total revenue of cheese producers. 

• True 

• False 

Suppose the government imposes a binding price floor in the cheese market and agrees to purchase all the surplus cheese at the price floor. 

Compared to the basic price floor _______ , benefit from this new policy and _______ lose.

Answer 1

Price floor is the minimum amount that a seller can get by selling goods.

Binding price floor is above equilibrium price and non binding price floor is lower or equal to equilibrium price.

The price floor of 3$ is lower than equilibrium price=5, so

The price floor of 3$ can't be binding.

As seller can't charge higher than price floor and CONSUMER is willing to to pay ,so cheese market will remain in equilibrium.

.With price floor of 3$ ,there will be equilibrium of cheese.

No, the market remain at equilibrium,so total revenue doesn't change.

Statement is false.

The producer will benefit from binding price floor amd CONSUMER will lose from new policy