Question
Q1, In the small country of Ananas, pineapples take about 16 months to bear fruit and harvest. Suppose that the demand curve for fresh pineapples
Q1,
In the small country of Ananas, pineapples take about 16 months to bear fruit and harvest. Suppose that the demand curve for fresh pineapples in Ananas is linear and downward-sloping. The government of Ananas would like to encourage growth in the market for pineapples. To this end, they are considering between two potential policies:
A. a per-unit subsidy given to buyers of pineapples, or
B. a price floor, where the government commits to purchasing any resulting
surplus quantity.
The government must choose only one of these policies. Suppose that either policy would have the same effect on the quantity of pineapples bought and sold, which policy would you recommend for the government of Ananas?
Using demand and supply curves, illustrate the two policies in the same diagram, and use it to justify your policy-recommendation.
(Hint: You could compare the two policies and discuss their advantages and disadvantages with reference to welfare effects).
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