Question

Answer the question based on the following supply and demand schedules in units per week for a product. Price Quantity Demanded Quantity Supplied $60 100 400 50 140 340 40 180 280 30 220 220 20 260 160 10 300 100 If the government introduced a guaranteed price floor of $40 and agreed to purchase surplus output, then the government's total support payments to producers would be

Answer 1

$4,000

Step-by-step explanation:

For computation of the government's total support payments to producers first we need to find out the surplus units which is shown below:

Floor price = $40

`Q_d = 180`

`Q_s = 280`

`Surplus\ units` =
`Q_s - Q_d`

= 280 - 180

= 100

Therefore,

The Total support payments to producer = Price floor × Surplus units

= $40 × 100

= $4,000

So, for determining the total support payment to producer we simply multiply the price floor with surplus units.