The government of Paulaville decides to set prices of wheat. Calculate the amount of the shortage or surplus if the government s
1 answer:
Answer:
I have uploaded the picture with the relevant information below.
Explanation:
We can see in this picture that the market equilibrium is met at a price of $5, thus, $5 is the equilibrium price, because demand and supply are both 125 at this point.
If the govenment sets a price floor of $2, there will be no effect, because the price floor is non-binding.
A non-binding price floor is a minimum price set by the government that is actually lower that the equilibrium market price. In this case, the price of the market will be allowed to go to $5, and reach equilibrium, so the policy osf setting the $2 price floor will have no effect.
You might be interested in
Answer:
They all help explain the downsloping demand curve
Explanation:
The options to the question wasn't provided. The complete question can be in the attached image.
The demand curve slopes downward from left to right. This indicates that the higher the price, the lower the quantity demanded and the lower the price, the higher the quantity demanded.
Income effect is a change in quantity demanded when real income change. Quantity demanded increases when real income increases and decreases when real income falls.
Substitution effect says that consumers would substituite to the consumption of a cheaper good when the price of a good originally consumed increases.
Diminishing marginal utility states that as consumption increases, utility derived from consumption falls and quantity demanded falls.
I hope my answer helps you
