Question - Examine the demand and supply schedule for butter in the following table. The USDA sets a minimum price of $1.50 per pound of butter.
|
Market for Butter
|
|
Price (dollars)
|
Quantity of Butter Demanded (millions of pounds)
|
Quantity of Butter Supplied (millions of pounds)
|
|
$0.50
|
120
|
75
|
|
0.60
|
116
|
80
|
|
0.70
|
112
|
85
|
|
0.80
|
108
|
90
|
|
0.90
|
104
|
95
|
|
1.00
|
100
|
100
|
|
1.10
|
96
|
105
|
|
1.20
|
92
|
110
|
|
1.30
|
88
|
115
|
|
1.40
|
84
|
120
|
|
1.50
|
80
|
125
|
a. What would the equilibrium quantity and equilibrium price be in the absence of the price support program?
b. Add the price floor of $1.50 to the figure.
Instructions: For the price floor, use the tool provided 'PF' and plot only the endpoints such that the first point is on the vertical axis and the endpoint is at a quantity of 130.
c. What is the monthly Qd and Qs with the price support program?
d. Shade in the deadweight loss associated with the price floor imposed on the market for butter and calculate the deadweight loss.
Instructions: Use the tool provided 'DWL' to shade in this area on the graph.