Price floor , economics, Microeconomics

Suppose 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 officially set at $16.10 per hundredweight of cheese. One hundredweight is 100 pounds.) At that price, according to data from the USDA, the quantity of cheese produced in 2009 by U.S. producers was 212.5 billion pounds, and the quantity demanded was 211 billion pounds. To support the price of cheese at the price floor, the USDA had to buy up 1.5 billion pounds of cheese. The accompanying diagram shows 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 created now?












c. With the price floor at $0.17 per pound of cheese, producers sell 212.5 billion pounds of cheese (some to consumers and some to the USDA). How much producer surplus is created now?











d. How much money does the USDA spend on buying up surplus cheese?
1.5 billion pounds or $931,677,018.63





e. Taxes must be collected to pay for the purchases of surplus cheese by the USDA. As a result, total surplus (producer plus consumer) is reduced by the amount the USDA spent on buying surplus cheese. Using your answers for parts b—d, what is the total surplus when there is a price floor? How does this compare to the total surplus without a price floor from part a?
Posted Date: 3/27/2012 7:16:53 PM | Location : United States







Related Discussions:- Price floor , economics, Assignment Help, Ask Question on Price floor , economics, Get Answer, Expert's Help, Price floor , economics Discussions

Write discussion on Price floor , economics
Your posts are moderated
Related Questions
NEW CLASSICAL BUSINES CYCLE THOERY: Yang, Xioaokai,  Economics: New Classical versus Neoclassical Frameworks, Oxford: Blackwell Publishers.  The book goes on to rigorously dev

Inflation Types Inflation is generally classified on the basis of its rate and causes, while rate-based classification of inflation refers to the severity of inflation or how h

Returns from Education Monetary benefits from education are called as returns. Such benefits accruing to an individual are called as private returns. The sum of all private re

Extracellular digestion is that in which food breaking into utile molecules that can be internalized by the cell is completed in the extracellular space, i.e., outside the cell. In

Should the manufacture, supply and use of tobacco be criminalised? Provide arguments for and/or against (relates to defining crime; concepts of deviance etc) Examine t

Theories and Models ?? Microeconomic Analysis             – Theories are taken in use to describe the observed phenomena in terms of a set of essential  rules and

Two people are engaged in a joint project. If each person i puts in the effort xi, the outcome of the project is worth f(x1, x2). Each person’s effort level xi is a number between


Question: (a) Long Run Incremental Cost (LRIC) is considered as the "gold standard" for setting interconnection charges. Discuss the strengths and weaknesses of the three ap

Q. Define government surplus? Surplus, Government:It's a government surplus exists when a government's tax revenues surpasses its total spending (including both program spendin