Question

Suppose the government sets an effective price floor (that is, a price above equilibrium) in the market for oranges and agrees to buy all oranges that go unsold at that price. The oranges purchased by the government are discarded. Illustrate the number of oranges purchased by the government. Illustrate the gains and losses to all relevant groups of Americans and the dead weight loss.

Answer 1

Answer:

If the market floor is over demand, there is a surplus supply at that point. As a result , the number for oranges bought by the state would be Q1Q2 across the table.

Benefit is to the growers growing oranges as they've been having a better price and the cost is to the customers and community at large as it increases in deadweight losses. The triangular region in the graph reflects a moral hazard, DWL.