Look at the area equal to areas 3+5 in Exhibit 7. If there is a price floor this area ends up being a deadweight loss. It is the loss to society of not producing Q1 Are there mutually beneficial trades that exist between Q2 and Q1, and if so, how do you know this?
Look at the area equal to areas 3+5 in Exhibit 7. If there is a price floor this area ends up being a deadweight loss. It is the loss to society of not producing Q1 Are there mutually beneficial trades that exist between Q2 and Q1, and if so, how do you know this?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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1. Look at the area equal to areas 3+5 in Exhibit 7. If there is a price floor this area ends
up being a deadweight loss . It is the loss to society of not producing Q1 Are there
mutually beneficial trades that exist between Q2 and Q1, and if so, how do you know
this?
![exhibit 7
Agricultural Price Floors
The demand for and supply of an agri-
cultural foodstuff are shown in this
exhibit The equilibrium price is P con-
Samers surplus (CS) is areas 1+2+ 3:
producers surplus is areas 4
loor of P effectively transfers some
of the comumers surplus to produc-
ws in the form of a gain in producers
sarplus Specifically. at P.coresamers
surplus is area 1 and producers' surplus
is areas 2+ 4. Consarmers are net los
ers because consumers surplus has
decreased by areas 2+3. Producers are
net gainers because producers surplus
has increased from areas 4 +5 to areas
2+4 and area 2 is targer than area S.
Overall, the economic pie ofCS+ PS has
decreased from areas 1+2 +3+4 +S
to areas 1+2+4.
S. A price
Pr
D]
Quantity
SELF-TEST](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fe8409d62-ce9c-470d-b77e-91021860c218%2Fef8fca7f-860d-4d5d-9286-e19c091edb6e%2Fcml9mvb_processed.jpeg&w=3840&q=75)
Transcribed Image Text:exhibit 7
Agricultural Price Floors
The demand for and supply of an agri-
cultural foodstuff are shown in this
exhibit The equilibrium price is P con-
Samers surplus (CS) is areas 1+2+ 3:
producers surplus is areas 4
loor of P effectively transfers some
of the comumers surplus to produc-
ws in the form of a gain in producers
sarplus Specifically. at P.coresamers
surplus is area 1 and producers' surplus
is areas 2+ 4. Consarmers are net los
ers because consumers surplus has
decreased by areas 2+3. Producers are
net gainers because producers surplus
has increased from areas 4 +5 to areas
2+4 and area 2 is targer than area S.
Overall, the economic pie ofCS+ PS has
decreased from areas 1+2 +3+4 +S
to areas 1+2+4.
S. A price
Pr
D]
Quantity
SELF-TEST
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