Question

In: Economics

The Agricultural Society persuades the government, in the interest of food security, to impose a price...

The Agricultural Society persuades the government, in the interest of food security, to impose a price floor on local carrots in order to keep carrot farmers in the business. (a) Assess the welfare implications of this measure. (b) Assess the effectiveness of this measure in keeping farmers in carrot farming.

Solutions

Expert Solution

The Agricultural Society persuades the government, in the interest of food security, to impose a price floor on local carrots in order to keep carrot farmers in the business.

As we know price floor is a government imposed price control or limit on how low a price can be charged for a product, good, commodity, or service. A price floor must be higher than the equilibrium price in order to be effective. This is done by government to ensure a good price to the producer so that they can survive. It can be shown graphically as -

Initially the equilibrium was at point e, with Price = P and Quantity =Q. But government sets a minimum price for corrots at Pf, so the price cant come below it. So at this price demand<Supply and hence there is a Surplus of carrot in the market.

a) Since the price floor increases the price of the product and hence the Consumer surplus decreases as shown in the figure at the same time there is increase in producer surplus but not as much as decrease in consumer surplus. Thus there is a dead weight loss represented by the triangle. So this decreases the overall welfare of the society.

b) As far as the problem of keeping the farmers in carrot farming is concerned, this measure is quite effective in keeping them in the business because of increase in price and hence profit. But in long term this measue is not much effective because due to increase in price the demand falls and hence with lesser demand there is less probability of expansion or development of carrot market.


Related Solutions

Question 2 - Price Floor The Agricultural Society persuades the government, in the interest of food...
Question 2 - Price Floor The Agricultural Society persuades the government, in the interest of food security, to impose a price floor on local carrots in order to keep carrot farmers in the business. (a) Assess the welfare implications of this measure. (b) Assess the effectiveness of this measure in keeping farmers in carrot farming. Learning Activity 5.2: Taxation Question 3 - Taxation Suppose the federal government requires beer drinkers to pay a $2 tax on each case of beer...
What is the optimal price cap for a government to impose on a monopoly? Why?
What is the optimal price cap for a government to impose on a monopoly? Why?
briefly discuss the domestic agriculture policies which provide food security and stabilize agricultural markets.
briefly discuss the domestic agriculture policies which provide food security and stabilize agricultural markets.
Lovers of opera persuade the government to impose a price ceiling of €50 per ticket, at...
Lovers of opera persuade the government to impose a price ceiling of €50 per ticket, at the country's national opera house.Does this policy get more or fewer people to attend? What does the market outcome depend on?
what are legislation impose on online food delivery. example for food panda and Grab food
what are legislation impose on online food delivery. example for food panda and Grab food
A growing concern in agricultural and food chemistry is the presence of residues in food. We...
A growing concern in agricultural and food chemistry is the presence of residues in food. We use many forms of organic chemicals in agriculture and food chemistry and there is growing concern as to how safe these materials are. Choose an organic chemical used in agricultural of food chemistry and report on the functional groups contained in your compound, the uses of the compound, and the safety of that compound.
1 a)Define food security and discuss THREE (3) dimensions that characterize food security.    b) Food...
1 a)Define food security and discuss THREE (3) dimensions that characterize food security.    b) Food self-sufficiency is defined as the extent to which a country is able to satisfy its food needs from its own domestic production. List and explain FOUR (4) factors that pose challenges to Small Island Developing States achieving food self-sufficiency.
Suppose that in the market for coffee, the government decides to impose a tax on the...
Suppose that in the market for coffee, the government decides to impose a tax on the consumption of coffee. Illustrate the equilibrium market for coffee reflecting the new tax. On your graph, label the new price that consumers pay as Pc On your graph, label the new price that sellers receive as Ps On your graph, shade in the area representing the tax revenue received by the government and label it (TR). On your graph, shade in the area of...
Suppose that the local government determines that the price of food is too high and imposes...
Suppose that the local government determines that the price of food is too high and imposes a ceiling on the market price of food that is below the equilibrium price in that locality. Predict some of the consequences of this ceiling
The price system accomplishes much for society that government could do but probably could not do...
The price system accomplishes much for society that government could do but probably could not do as well. Explain
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT