The market equilibrium price for coffee beans in Ecuador is $2.75/pound, a price
ID: 1180679 • 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 $3.50/pound. What market response would you expect from this government action? How would supply, demand, and price change? Use a graph to illustrate your answer.
Explanation / Answer
supply will go further down since due to the price rise the demand will fall . the market equilibrium price will become 3.5$ and therefore it will be same ass the previous situation at a different price level
there will be a shift in the supply curve towards the left and then there will be movement along the deman d curve it will look like a normal graph with only one demand curve and two supply curves
2 points of
intersection are at p=2.75 and p=3.5
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