Suppose that the U.S. Department of Agriculture (USDA) administers the price flo

Question

Suppose that the U.S. Department of Agriculture (USDA) administers the price floor for cheese, set at $0.17 per pound of cheese. (In real life, the actual price floor was 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 212.5 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 1.5 billion pounds of cheese. The accompanying diagram shows supply and demand curves illustrating the market for cheese.

Problem 2

The accompanying table shows the price and yearly quantity sold of ice cream cones on Sidfield Island.

Price of Ice Cream Cones

Quantity of Ice Cream Cones Demanded

$1

3000

$2

2400

$3

1600

$4

800

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References:

Microeconomics: Unit 4 Assignment: CS and   PS; Elasticity

Content (13 points)

Points   Possible

Points   Earned

Problem 1:

  

Price of Ice Cream Cones

     

Quantity of Ice Cream Cones Demanded

     

$1

     

3000

     

$2

     

2400

     

$3

     

1600

     

$4

     

800

  

Explanation / Answer

Answers are in black color:

Suppose that the U.S. Department of Agriculture (USDA) administers the price floor for cheese, set at $0.17 per pound of cheese. (In real life, the actual price floor was 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 212.5 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 1.5 billion pounds of cheese. The accompanying diagram shows supply and demand curves illustrating the market for cheese.

Though there is no graph attached, here is the way to calculate the answer:

(0.13-0.06) * 211billion pounds = $ 14. 77 billion

(0.20-0.13) * 211 billion pounds = $ 14.77 billion

Add producer + consumer surplus and total surplus will be 29.54 billion

Initial consumer surplus was $ 14.77 billion, but with price floor, there will be additional consumer surplus of (0.20

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