Answer to Question #121940 in Microeconomics for talhashakeel shakeel

Question

analyze the possible consequences of setting price floor of sugarcane below equilibrium price. Compare your conclusions with the ones

Answer 1

The price floor prevents a price from falling below a certain level.

If the price floor is set below the equilibrium price, there is NO effect because the market bears a higher market price for sugarcane than the amount defined by the price floor, however if the price floor is set above the equilibrium price it may result in a surplus.