Answer to Question #293170 in Macroeconomics for Bajwa

Question

Suppose the government sets a price floor for student books that is above the

competitive equilibrium price. Draw a graph to illustrate the welfare impacts of this policy.

Answer 1

Price Floor Above Equilibrium Price

Area represented by A, B, C, shows the Producer surplus, while D shows the Consumer surplus, and F representing the dead weight loss. $E_1$ shows the initial market equilibrium with a surplus existing between points $Q^1$ .

Reference.

Salant, S. T. E. P. H. E. N., Shobe, W. I. L. L. I. A. M., & Uler, N. E. S. L. I. H. A. N. (2020). The effects of” non-binding” price floors: Theoretical and experimental results. University of Maryland Working Paper.