Question 1 (a) Assume that the markets for sugar cane, rum and whiskey are initially in equilibrium. Sugar cane is a principal ingredient in rum, but it is not an ingredient in whiskey. Rum and whiskey are substitutes in consumption. The government implements a price restriction in the sugar cane market with the aim of protecting the farmers. (i) What type of price restriction is implemented by the government? Explain. (ii) Discuss the effect on each market if the government implements a price restriction in the sugar cane market with the aim of protecting the farmers. (iii) Illustrate the effect on each market if the government implements a price restriction in the sugar cane market with the aim of protecting the farmers.

Question 1 (a) Assume that the markets for sugar cane, rum and whiskey are initially in equilibrium. Sugar cane is a principal ingredient in rum, but it is not an ingredient in whiskey. Rum and whiskey are substitutes in consumption. The government implements a price restriction in the sugar cane market with the aim of protecting the farmers. (i) What type of price restriction is implemented by the government? Explain. (ii) Discuss the effect on each market if the government implements a price restriction in the sugar cane market with the aim of protecting the farmers. (iii) Illustrate the effect on each market if the government implements a price restriction in the sugar cane market with the aim of protecting the farmers.

ECON MICRO

5th Edition

ISBN:9781337000536

Author:William A. McEachern

Publisher:William A. McEachern

Chapter11: Resource Market

Section: Chapter Questions

Problem 3.5P

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Question 1
(a) Assume that the markets for sugar cane, rum and whiskey are initially in equilibrium.
Sugar cane is a principal ingredient in rum, but it is not an ingredient in whiskey.
Rum and whiskey are substitutes in consumption. The government implements a
price restriction in the sugar cane market with the aim of protecting the farmers.
(i) What type of price restriction is implemented by the government? Explain.

(ii) Discuss the effect on each market if the government implements a price
restriction in the sugar cane market with the aim of protecting the farmers.

(iii) Illustrate the effect on each market if the government implements a price
restriction in the sugar cane market with the aim of protecting the farmers.

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