Question

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

If the government agreed to purchase the surplus output and introduced a guaranteed price floor of $40, then most likely the government 's total support payments to producers would be $4000 per week. We have a 180 quantity demanded and we have 280 quantity supplied, we will get the surplus by subtracting the supply by demand. So, 280 - 180 = 100 x price of 40 = 4000.