The diagram below shows the competitive U.S. market for soybeans at equilibrium. Assume that farmers successfully lobby the U.S.government to impose a price floor of $20 per bushel. Answer the parts of the question below on the basis of this diagram.Ps (per bushel)$25$20Pe = $15$10$ 5DQeQs10 billion(bushels)U.S. Soybean Marketa)Redraw the market diagram and illustrate the deadweight loss that will result from the price floor. Fully and carefullyexplain what a deadweight loss entails, offering references to your diagram.b)With the price floor, there will likely be a misallocation of transactions on one side of the market. In other words, either thewrong suppliers will be able to sell their soybeans in the marketplace or the wrong demanders will be able to buy soybeans in themarketplace. Explain which of these will happen and how we know the allocation is not the best possible.

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The diagram below shows the competitive U.S. market for soybeans at equilibrium. Assume that farmers successfully lobby the U.S. government to impose a price floor of $20 per bushel. Answer the parts of the question below on the basis of this diagram.

The diagram below shows the competitive U.S. market for soybeans at equilibrium. Assume that farmers successfully lobby the U.S. government to impose a price floor of $20 per bushel. Answer the parts of the question below on the basis of this diagram.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

The diagram below shows the competitive U.S. market for soybeans at equilibrium. Assume that farmers successfully lobby the U.S.
government to impose a price floor of $20 per bushel. Answer the parts of the question below on the basis of this diagram.
Ps (per bushel)
$25
$20
Pe = $15
$10
$ 5
D
Qe
Qs
10 billion
(bushels)
U.S. Soybean Market
a)
Redraw the market diagram and illustrate the deadweight loss that will result from the price floor. Fully and carefully
explain what a deadweight loss entails, offering references to your diagram.
b)
With the price floor, there will likely be a misallocation of transactions on one side of the market. In other words, either the
wrong suppliers will be able to sell their soybeans in the marketplace or the wrong demanders will be able to buy soybeans in the
marketplace. Explain which of these will happen and how we know the allocation is not the best possible.

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