Cheese at the price floor, Microeconomics

Assume that the U.S. Department of Agriculture (USDA) administers the price floor for cheese, set at $0.17 per pound of cheese. (The price floor is formally set at $16.10 per hundredweight of cheese. One hundred weights are 100 pounds.) At that price, according to data from the USDA, the quantity of cheese formed in 2009 by U.S. producers was 212.5 billion pounds, and the quantity demanded was 211 billion pounds. To maintain the price of cheese at the price floor, the USDA had to buy up 1.5 billion pounds of cheese. The accompanying diagram demonstrate supply and demand curves illustrating the market for cheese.



a.  In the absence of a price floor, how much consumer surplus is created? How much producer surplus? What is the total surplus


b.  With the price floor at $0.17 per pound of cheese, consumers buy 211 billion pounds of cheese. How much consumer surplus is formed now

Posted Date: 3/23/2013 6:14:50 AM | Location : United States







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