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Unformatted text preview: o Government supports the price floor by purchasing the surplus Government cheese – Surplus of milk is converted to a more durable product and then the cheese is given away through soup kitchen…? • Minimum wage is not supported like a surplus is – government does not hire unemployed workers • Numerical Example : o D(initial): P = 6 - .5Q o S(initial): P = 2 + .5Q a. At equilibrium: S = D i. 6 - .5Q = 2 + .5Q ii. 4 = Q(initial) iii. P(initial) + 2 + .5(4) = 4 b. Government implements Price floor = $5 i. Is effective ii. Surplus c. What is the amount of the surplus? [USE BOTH EQUATIONS: Q(s)-Q(d) ] i. Quantity Supplied 1. Price floor = $5 = 2 + .5Q Q(s) 2. 3 = .5Q ; Quantity supplied = 6 ii. Quantity Demanded 1. 5 = 6 - .5Q Q(d) 2. 1 = .5Q 3. 2 = Q(d) iii. Total: Q(d)-Q(s) 1. 6 – 2 = 4...
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This note was uploaded on 04/15/2008 for the course ECON 100 taught by Professor Stephaniemartin during the Fall '07 term at Allegheny.
- Fall '07