Access over 20 million homework & study documents

Assignment: Problem 1 & 2

Content type
User Generated
Type
Study Guide
Rating
Showing Page:
1/5
Unit 4
[Microeconomics]
Unit 4 Assignment: Problem 1 & 2
Name: -
Course Number: -
Section Number: -
Unit Number: - 4
Date: -
Problem 1
Suppose that the U.S. Department of Agriculture (USDA) administers the price floor for cheese, set at
$0.17 per pound of cheese. (In real life, the actual price floor was officially set at $16.10 per
hundredweight of cheese. One hundredweight is 100 pounds.) At that price, according to data from
the USDA, the quantity of cheese produced in 2009 by U.S. producers was 212.5 billion pounds, and
the quantity demanded was 211 billion pounds. To support the price of cheese at the price floor, the
USDA had to buy up 1.5 billion pounds of cheese. The accompanying diagram shows supply and
demand curves illustrating the market for cheese.
a. In the absence of a price floor, the maximum price that a few of the consumers are willing to
pay is $0.20 for a pound of cheese whereas the market equilibrium price is $0.13 per pound.
The graph also shows that the minimum price at which a few of the producers are willing to sell
is $0.06 per pound. In the absence of a price floor, how much consumer surplus is created?
In the absence of a price floor consumer surplus of $0.07 per pound of cheese is created
b. How much producer surplus?

Sign up to view the full document!

lock_open Sign Up
Showing Page:
2/5
Unit 4
[Microeconomics]
In the absence of a price floor there is a producer surplus of $0.07 per pound of cheese.
c. What is the total surplus?
The total surplus in the absence of price floor is $0.14 per pound of cheese. It is the total of consumer
surplus and producer surplus.
d. The maximum price that a few of the consumers are willing to pay is $0.20 per pound of
cheese, and the price floor is set at $0.17 per pound. With the price floor at $0.17 per pound
of cheese, consumers buy 211 billion pounds of cheese. How much consumer surplus is
created now?
Consumer surplus of $0.04 per pound of cheese is here if there is a price floor at $0.17 per pound of
cheese.
e. The minimum price at which a few of the producers are willing to sell a pound of cheese is
$0.06, and the price floor is set at $0.17 per pound. With the price floor at $0.17 per pound of
cheese, producers sell 212.5 billion pounds of cheese (some to consumers and some to the
USDA). How much producer surplus is created now?
In this case there is a producer surplus of $0.11 per pound of cheese as there is a price floor at $0.17
per pound of cheese and he is selling 212.5 billion pounds of cheese (some to consumers and some
to the USDA).
f. The surplus cheese USDA buys is the difference between the quantity of cheese producers
sell (212.5 billions of pounds of cheese) and the quantity of cheese consumers are willing to
buy at the price floor (211 billions of pounds of cheese). How much money does the USDA
spend on buying up surplus cheese?
To support the price of cheese at the price floor, the USDA had to buy up 1.5 billion pounds of
cheese. USDA is spending $0.08 per pound of cheese on buying up this surplus cheese.
g. Taxes must be collected to pay for the purchases of surplus cheese by the USDA. As a result,
total surplus (producer plus consumer) is reduced by the amount the USDA spent on buying
surplus cheese. Using your answers for parts d, e, & f, what is the total surplus when there is a
price floor?
The total surplus is $0.07 per pound of cheese, when there is a price floor. This is reduced by the
amount that the USDA spent on buying surplus cheese.

Sign up to view the full document!

lock_open Sign Up
Showing Page:
3/5

Sign up to view the full document!

lock_open Sign Up
End of Preview - Want to read all 5 pages?
Access Now
Unformatted Attachment Preview
Unit 4 Assignment: Problem 1 & 2 Name: - Course Number: - Section Number: - Unit Number: - 4 Date: - Problem 1 Suppose that the U.S. Department of Agriculture (USDA) administers the price floor for cheese, set at $0.17 per pound of cheese. (In real life, the actual price floor was officially set at $16.10 per hundredweight of cheese. One hundredweight is 100 pounds.) At that price, according to data from the USDA, the quantity of cheese produced in 2009 by U.S. producers was 212.5 billion pounds, and the quantity demanded was 211 billion pounds. To support the price of cheese at the price floor, the USDA had to buy up 1.5 billion pounds of cheese. The accompanying diagram shows supply and demand curves illustrating the market for cheese. a. In the absence of a price floor, the maximum price that a few of the consumers are willing to pay is $0.20 for a pound of cheese whereas the market equilibrium price is $0.13 per pound. The graph also shows that the minimum price at which a few of the producers are willing to sell is $0.06 per pound. In the absence of a price floor, how much consumer surplus is created? In the absence of a price floor consumer surplus of $0.07 per pound of cheese is created b. How much producer surplus? In the absence of a price floor there is a producer surplus of $0.07 per pound of cheese. c. What is the total surplus? The total surplus in the absence of price floor is $0.14 per pound of cheese. It is the total of consumer ...
Purchase document to see full attachment
User generated content is uploaded by users for the purposes of learning and should be used following Studypool's honor code & terms of service.

Anonymous
Just the thing I needed, saved me a lot of time.

Studypool
4.7
Trustpilot
4.5
Sitejabber
4.4

Similar Documents