Question
a.In the absence of a price floor, the maximum price that a few of the consumers are willing to pay is up to $100 per
a.In the absence of a price floor, the maximum price that a few of the consumers are willing to pay is up to $100 per barrel of gosum berries. The market equilibrium (E) price is $50 per barrel. How much consumer surplus is created when there is no price floor? Show your calculations. 500 equilibrium quantity x ($100max price-$50 equilibrium price) x =
500 x $50 x = $12,500
b.How much producer surplus is created when there is no price floor? Show your calculations.(500-0)x ($50-0)=500 x50= $12,500
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c. What is the total surplus when there is no price floor? Show your calculations.
Producer surplus + Consumer Surplus= Total Surplus
$12,500 + 12,500 = $25,000
d.After the price floor is instituted, the legal minimum price that can be charged by suppliers is $70 per barrel. The maximum price that a few of the consumers are still willing to pay is $100 per barrel of gosum berries. With the price floor at $70 per barrel, consumers buy 300 barrels of gosum berries per month. How much consumer surplus is created with the price floor? Show your calculations.
((300-0)*(100-70))*1/2 = 300*30*1/2
$9000/2= $4500
e.After the price floor is instituted, the Chairman of Productions Office buys up any barrels of gosum berries that the producers are not able to sell. With the price floor, the producers sell 300 barrels per month to consumers, but the producers, at this high price floor, produce 700 barrels per month. How much producer surplus is created with the price floor? Show your calculations.
70-50=20*200=4000*1/2=2000(50-30)=20*200=4000*1/2=2000+2000=4000 deadw
70-30=40*300=12000(30-0)*300=9000*1/2=4500 +12000=16,500(Wells, 2017)
f.The Chairman of Production's Office buys any barrels of gosum berries that the producers are not able to sell. With the price floor, the producers sell 300 barrels per month to consumers; but the producers, at this high price floor, produce 700 barrels per month. How much money does the chairman of production's office spend on buying up gosum berries? Show your calculations.
((700-300) *($70-$50)= 400*$70= $28,000
g.The Emperor of Gondwanaland must collect taxes from the people to pay for the purchases of surplus gosum berries by the Chairman of Production's Office. As a result, total surplus (producer plus consumer) is reduced by the amount the Chairman of Production's Office spent on buying surplus gosum berries. Using your answers for problems d, e, and f above, what is the total surplus when there is a price floor? Show your calculations.
(D 4500 +E 16500) + F 28000 = 21,000-28000= -$7000
h.How does this compare to the total surplus without a price floor from question c above? Is it more, or less, and by how much? C $25,000-$28,000=-$3000
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