Question

The U.S. government imposes a price floor for U.S. sugar that is above the market clearing price. ​1.) Using the line drawing tool​, illustrate the U.S. sugar market with the price floor in place. Properly label this line. ​2.) Using the point drawing tool​, draw two points to show the quantity demanded along the demand curve and the quantity supplied along the supply curve. Properly label each point. Carefully follow the instructions​ above, and only draw the required objects.

Answer 1

The imposition of a price floor will create a supply surplus. With higher prices, sugar producers will have more incentives to increase production, while the demanded quantity will reduce due to higher prices. This surplus would either be stored, bought by the government or disposed of.

Step-by-step explanation:

1) In the attached graph it can be seen how the market floor price (P*, blue line), as it is higher than the market clearing price (P, black line), provides incentives for sugar producers to increase their output.

2)On the other hand, due to the sugar price hike, the quantity demanded tends to fall from Dq to Dq*, whereas the supplied quantity increases from Sq to Sq*