Assume that Bangladesh currently imports all of its coffee and the demand curve is given by Q
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Assume that Bangladesh currently imports all of its coffee and the demand curve is given by Q = 250 - 8P. World producers can harvest and ship coffee to Bangladesh at a constant marginal cost of $ 8 per pound. The distributors of Bangladesh can distribute coffee for a price of $1 per pound. The Bangladesh is competitive. Government is considering a tariff on coffee imports of $1 per pound.
Using a suitable graph explain the mechanism of floor price and show the dead weight loss resulting from it. Assume that government sets the minimum below the equilibrium price. What impact would you expect from this intervention of the government? [4]
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