COMPETENCY ASSESSMENT PURDUE GLOBAL UNIVERSITY BU224M2 GOVERNMENTAL PRICE SETTING 12 19 2021 In a perfectly competitive market, the equilibrium price and quantity represent the most efficient operation of that market Optimum efficiency means that sellers cannot be made better off without, at the same time, making buyers worse off, and that buyers cannot be made better off, without making the sellers worse off In this assessment, you will demonstrate your understanding and ability to correctly calculate the consumer surplus, producer surplus, and total surplus both before a price floor is established and after a price floor is enacted Additionally, you will demonstrate an understanding of the impact on the entire economy, based on any changes in taxes required, if the government is to purchase any extra product that is not sold to consumers This assessment presents a scenario in which a government tries to improve the financial position of the sellers, in such a perfectly competitive market, by instituting a legal price floor that is significantly above the equilibrium price A price floor is the lowest price for which a seller can legally sell the product Directions Using this Word template, answer the following questions based on the situation Questions Suppose that the Gondwanaland chairman of production, who sets the governmental price floor for gosum berries, in an effort to assist the gosum berry producers to have a higher income, sets the price floor at $70 per barrel In that particular year, the amount of gosum berries produced at the $70 price floor was 700 barrels per month To support the price of gosum berries, the Chairman of Production's Office had to purchase 400 barrels per month The accompanying chart and diagram shows supply and demand curves illustrating the market for Gondwanaland gosum berries Price Quantity Supplied Quantity Demanded $120 1,200 $110 1,100 $100 1,000 0 $90 900 100 $80 800 200 $70 700 300 $60 600 400 $50 500 500 $40 400 600 $30 300 700 $20 200 800 $10 100 900 $0 0 1,000 The accompanying diagram shows supply and demand curves illustrating the market for Gondwanaland gosum berries Utilizing this information, answer the following questions 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 (100 50)(500)( 5) 12,500 How much producer surplus when there is no price floor (50 0)(500)(,5) 12,500 What is the total surplus when there is no price floor 12,500 12,500 25,000 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 CS with price floor 0 5 x (100 70) x 300 4,500 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 Producer Surplus (700 (70 0) ) 2 24,500 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 700 300 400(70) 28,000 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 Total surplus (producer plus consumer) $4,500 $24,500 $29,000 Amount spent by Chairman of Production's Office buying surplus gosum berries $ 28,000 Total surplus when there is a price floor 29,000 28,000 $1,000 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 $25,000 $1,000 $24,000 The surplus is less without a price floor of 24,000 $ a month Please again view the PDF I provided I have 3 areas of surplus to add for producer surplus you have 1 and have been providing 1 It appears to me that you are still not creating the proper areas of a triangle and a rectangle (or 2 small ones) for producer surplus You must get 2 areas of surplus for producer surplus after a price floor (or 3 if you break up the large rectangle into 2 smaller ones) See the PDF I provided and this Youtube video here that I think does a good job too MARKET IN EQUILIBRIUM CS PS D 6 D (S BX H A 5 B BASE HE HEIGHT 6 x 5 x 5 15 PS BY H X 5 6 x 5 x 5 15 PRICE FLOOR DEADWEIGHT LOSSES S 2 CS after Price floor 3x 2 x 5 3 15 after Price Flore 3 x 3 9 ( SQUARE 1 ) 2 X 3 6 ( SQUARE 2 ) 3 x 3 x 5 4 5 ( TRIANGLE ) 19 5

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COMPETENCY ASSESSMENT PURDUE GLOBAL UNIVERSITY BU224M2 GOVERNMENTAL PRICE SETTING 12/19/2021 In a perfectly competitive market, the equilibrium price and quantity represent the most efficient operation

COMPETENCY ASSESSMENT

PURDUE GLOBAL UNIVERSITY

BU224M2 GOVERNMENTAL PRICE SETTING

12/19/2021

In a perfectly competitive market, the equilibrium price and quantity represent the most efficient operation of that market. Optimum efficiency means that sellers cannot be made better off without, at the same time, making buyers worse off, and that buyers cannot be made better off, without making the sellers worse off.

In this assessment, you will demonstrate your understanding and ability to correctly calculate the consumer surplus, producer surplus, and total surplus both before a price floor is established and after a price floor is enacted. Additionally, you will demonstrate an understanding of the impact on the entire economy, based on any changes in taxes required, if the government is to purchase any extra product that is not sold to consumers.

This assessment presents a scenario in which a government tries to improve the financial position of the sellers, in such a perfectly competitive market, by instituting a legal price floor that is significantly above the equilibrium price. A price floor is the lowest price for which a seller can legally sell the product.

Directions:

Using this Word template, answer the following questions based on the situation.

Questions

Suppose that the Gondwanaland chairman of production, who sets the governmental price floor for gosum berries, in an effort to assist the gosum berry producers to have a higher income, sets the price floor at $70 per barrel. In that particular year, the amount of gosum berries produced at the $70 price floor was 700 barrels per month. To support the price of gosum berries, the Chairman of Production's Office had to purchase 400 barrels per month. The accompanying chart and diagram shows supply and demand curves illustrating the market for Gondwanaland gosum berries.

Price	Quantity Supplied	Quantity Demanded
$120	1,200
$110	1,100
$100	1,000	0
$90	900	100
$80	800	200
$70	700	300
$60	600	400
$50	500	500
$40	400	600
$30	300	700
$20	200	800
$10	100	900
$0	0	1,000

The accompanying diagram shows supply and demand curves illustrating the market for Gondwanaland gosum berries. Utilizing this information, answer the following questions.

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?

(100-50)(500)(.5) = 12,500.

How much producer surplus when there is no price floor?

(50-0)(500)(,5) = 12,500

What is the total surplus when there is no price floor?

12,500 + 12,500 = 25,000

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?

CS with price floor =0.5 x (100-70) x 300 = 4,500

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?

Producer Surplus= (700 * (70-0) ) / 2 = 24,500

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?

700-300 = 400(70) = 28,000

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?

Total surplus (producer plus consumer) = $4,500 + $24,500 = $29,000

Amount spent by Chairman of Production's Office buying surplus gosum berries = $ 28,000

Total surplus when there is a price floor = 29,000-28,000 = $1,000

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?

=$25,000- $1,000

= $24,000

The surplus is less without a price floor of 24,000 $ a month

Please again view the PDF I provided; I have 3 areas of surplus to add for producer surplus; you have 1 and have been providing 1. It appears to me that you are still not creating the proper areas of a triangle and a rectangle (or 2 small ones) for producer surplus. You must get 2 areas of surplus for producer surplus after a price floor (or 3 if you break up the large rectangle into 2 smaller ones). See the PDF I provided and this Youtube video here that I think does a good job too.

MARKET IN EQUILIBRIUM . CS - PS D 6 D (S: BX H A - 5 B= BASE HE HEIGHT 6 x 5 x . 5 - 15 PS - BY H X. 5 6 x 5 x . 5 - 15 PRICE FLOOR DEADWEIGHT LOSSES S #2 CS after Price floor = 3x 2 x . 5 = 3 15 after Price Flore: 3 x 3 = 9 ( SQUARE # 1 ) 2 X 3 - 6 ( SQUARE # 2. ) 3 x 3 x - 5 = 4.5 ( TRIANGLE ) 19.5