Question

Suppose that the price of a 1-pound bag of standard coffee is $8 and the price of a 1-pound bag of fair-trade coffee is $12. Congress decides to impose a price Floor of $10 per pound on all 1-pound bags of coffee. Will this policy cause more or fewer people to buy fair-trade coffee?

Answer 1

When a price floor of $10 per pound is imposed on all 1-pound bags of coffee, it could potentially cause more people to buy fair-trade coffee.

Step-by-step explanation:

When a price floor of $10 per pound is imposed on all 1-pound bags of coffee, it means that the price of both standard and fair-trade coffee cannot fall below $10 per pound.

Since the price of fair-trade coffee is already higher than $10 per pound ($12), this policy would not affect the price of fair-trade coffee. However, it might lead more people to buy fair-trade coffee because the price difference between standard coffee ($8) and fair-trade coffee ($12) would decrease. Some consumers may decide to switch to fair-trade coffee since the price is now closer to that of standard coffee.

Therefore, this policy could potentially cause more people to buy fair-trade coffee.