Suppose, the government has decided that the free-market price of sugar is too low. Government has imposed a binding price floor of per kg sugar at 50 taka, whereas, the market price was 40 taka per kg before the announcement. a. Explain the effects of this flooring price on the demand and supply of the sugar market. In your graph, show the effects of the price changes on quantity demanded and quantity supplied. Does it create excess supply or excess demand? What will happen to the market price? b. In the above situation, who (buyers or sellers) is going to get the benefit from such policy? Explain it in your own words (clue: use a graph where a Price flooring is binding).

Suppose, the government has decided that the free-market price of sugar is too low. Government has imposed a binding price floor of per kg sugar at 50 taka, whereas, the market price was 40 taka per kg before the announcement. a. Explain the effects of this flooring price on the demand and supply of the sugar market. In your graph, show the effects of the price changes on quantity demanded and quantity supplied. Does it create excess supply or excess demand? What will happen to the market price? b. In the above situation, who (buyers or sellers) is going to get the benefit from such policy? Explain it in your own words (clue: use a graph where a Price flooring is binding).

Principles of Microeconomics

7th Edition

ISBN:9781305156050

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter4: The Market Forces Of Supply And Demand

Section: Chapter Questions

Problem 8PA

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