The market equilibrium price for coffee beans in Ecuador is $2.75/pound, a price
ID: 1177805 • Letter: T
Question
The market equilibrium price for coffee beans in Ecuador is $2.75/pound, a price at which growers are unable to make a profit. Due to the lack of profits, many growers have stopped production and the output of coffee beans has fallen from 400 tons per year (capacity for the region) to 250 tons per year. As a result of pleas from the growers, the government steps in and sets a floor price for coffee beans at $3.50/pound. What market response would you expect from this government action? How would supply, demand, and price change?
Please show a graph.
Explanation / Answer
supply will go further down since due to the price rise the demand will fall . the market equilibrium price will become 3.5$ and therefore it will be same ass the previous situation at a different price level
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