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(15%) The Myanmar government has fixed the minimum price for rice at K500,000 for 100 baskets of rice (USS327.30 for about 2.09 tons) in a
(15%) The Myanmar government has fixed the minimum price for rice at K500,000 for 100 baskets of rice (USS327.30 for about 2.09 tons) in a bid to establish a "fair price" for rice farmers. The government has agreed to buy rice directly from the rice farmers at the floor price, given that the rice meets quality standards? (a) The rice market is perfectly competitive. Use a diagram to discuss the welfare impact of this policy on the consumers and farmers. State clearly the consumer surplus, producer surplus and deadweight loss under such policy in your diagram. (9%) (b) In November, rice farmers in Ayeyarwady Region (one region of the country) complained that the regional government failed to keep the government promise to buy rice at the floor price. "Though the government said the minimum price is K500,000, nobody is paying that price, and the government is not buying directly from farmers, so we can only sell at the market rates," said a rice farmer. Suppose the farmers decided how much to produce based on the minimum price announced, but the government failed to keep its promise. So, the farmers had to sell all the rice they produced at the market prices. Use a diagram to discuss the welfare impact if the government failed to keep its promise on the consumers and farmers. State clearly the market price in this case, the consumer surplus, producer surplus and deadweight loss under such policy in your diagram. (6%)
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