Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

I need help with parts i) and j), but I included the whole problem for context. Thank you in advance! 5. The current price of

I need help with parts i) and j), but I included the whole problem for context. Thank you in advance!

image text in transcribed
5. The current price of peanuts is $1 per pound and 200 million pounds are traded annually. The estimated slope of the supply curve for peanuts is 200 and the estimated slope of demand is -400. a) At the current price and quantity traded what is the elasticity of supply? What is the elasticity of demand? Because of the low price of peanuts the government is considering imposing a price floor in the peanut market. The floor price would be set at $1.25 per pound. b) Illustrate supply and demand curves for the peanut market. In your diagram indicate the current market clearing price for peanuts. c) In your diagram for part (b) illustrate the proposed price floor. Indicate the quantity traded at the floor price of $1.25 per pound. At $1.25 per pound will there be excess supply or excess demand (or neither) for peanuts? d) In your diagram for part (b) indicate the change in producer surplus and consumer surplus that would result from the imposition of the price floor. e) In general will producers necessarily gain from a price floor? Briefly explain your answer. What effect does the elasticity of demand have on the change in producer surplus? f) Given the estimated slopes of supply and demand what would be the quantity traded at the floor price of $1.25? g) What would be the dollar value of the transfer from consumers to farmers at the floor price? What would be the loss of the producers at the floor price? h) Given your answer to (g) did the price floor make farmers better off? i) If instead of imposing a price floor the government announced that it would buy peanuts in the market until the price of peanuts rises to $1.25 per pound then how many pounds of peanuts would it have to buy? Illustrate this amount in your diagram from part (b). Would producers necessarily be better off? Briefly explain your answer. j) Assume that the government is buying peanuts until the price rises to $1.25 as in part (i). If the government valued the peanuts that it purchased (at $1.25) at $1 per pound then would there be dead weight loss associated with the purchase? Briefly explain your

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Business Intelligence

Authors: Jerzy Surma

1st Edition

1606491857, 9781606491850

More Books

Students also viewed these Economics questions