Asked by Prabha Karki on Jul 13, 2024
Verified
The market demand and supply functions for pork are: 
To help pork producers, the U.S. Congress is considering legislation that would put a price floor at $2.25 per unit. If this price floor is implemented, how many units of pork will the government be forced to buy to keep the price at $2.25? How much will the government spend in total? How much does producer surplus increase?
Price Floor
A government or regulatory-imposed minimum price set above the equilibrium price, preventing market prices from falling below it.
Producer Surplus
The difference between what producers are willing to accept for a good versus what they actually receive, measured as the area above the supply curve and below the market price.
Government Spend
Public expenditure by government entities on goods, services, and infrastructure for a country's economy and citizens' welfare.
- Understand the concept and effects of price floors and price supports in agricultural markets.
- Calculate equilibrium price and quantity in the presence and absence of government interventions.
- Evaluate the economic effects of different government policies on producer and consumer welfare.
Verified Answer
AB
Andrea BlackJul 20, 2024
Final Answer :
First we must determine the market equilibrium quantity and price. To do this, we set quantity demanded equal to quantity supplied and solve for equilibrium price. 
At a price of $2, the quantity exchanged will be: 1,000. The choke price (lowest price such that no units are transacted) is $4. The consumer surplus is 
Producer surplus is 
If a price floor of $2.25 per unit is implemented, consumers will purchase 875 units. However, producers will bring 1,025 units to the market. The government will be forced to buy up the surplus 150 units at $2.25 per unit. Consumer surplus is: 
Producer surplus is 
Government spending is $337.50. Producer surplus increases by $253.125 or 14.1%. Consumer surplus falls by over 23%.
At a price of $2, the quantity exchanged will be: 1,000. The choke price (lowest price such that no units are transacted) is $4. The consumer surplus is Producer surplus is If a price floor of $2.25 per unit is implemented, consumers will purchase 875 units. However, producers will bring 1,025 units to the market. The government will be forced to buy up the surplus 150 units at $2.25 per unit. Consumer surplus is: Producer surplus is Government spending is $337.50. Producer surplus increases by $253.125 or 14.1%. Consumer surplus falls by over 23%.
Learning Objectives
- Understand the concept and effects of price floors and price supports in agricultural markets.
- Calculate equilibrium price and quantity in the presence and absence of government interventions.
- Evaluate the economic effects of different government policies on producer and consumer welfare.