Suppose that the U.S. Department of Agriculture (USDA) administers the price floor for cheese, set at
$0.17 per pound of cheese. (The price floor is officially set at $16.10 per hundredweight of cheese.
One hundredweight is 100 pounds.) At that price, according to data from the USDA, the quantity of
cheese produced in 2009 by U.S. producers was 212 billion pounds, and the quantity demanded was
211 billion pounds. To support the price of cheese at the price floor, the USDA had to buy up 1 billion
pounds of cheese. The accompanying diagram shows supply and demand curves illustrating the
market for cheese.
In the absence of a price floor, how much consumer surplus is created? How much producer
surplus? What is the total surplus
With the price floor at $0.17 per pound of cheese, consumers buy 211 billion pounds of
cheese. How much consumer surplus is created now?
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