Answer to Question #121971 in Microeconomics for talha shakeel

Question

analyze the possible consequences of setting price floor of sugarcane below equilibrium price. Compare your conclusions with the ones, stated in this report.

Answer 1

When the price floor of is set below equilibrium price there is no effect since the market bears a higher market price for sugarcane which is more than the amount set by the price floor. Nevertheless, when the price floor is defined above the equilibrium price, it may cause surplus production of sugarcane. Price floor functions to prevent price from falling below a specific level.