Question

Refer to Exhibit 16.3,which shows the market for wool.Suppose the government introduces a variety of policies that set floor prices for wool at $6.As a result of the price support,_____ of surplus wool is generated.

A)100 million pounds

B)60 million pounds

C)150 million pounds

D)90 million pounds

E)10 million pounds

Answer 1

To determine the amount of surplus wool generated by the floor price of $6, we need to find the difference between the quantity supplied and the quantity demanded at that price.

Looking at Exhibit 16.3, we can see that the quantity supplied at a price of $6 is 250 million pounds, while the quantity demanded is 160 million pounds.

Therefore, the surplus of wool generated by the price floor is:

250 million pounds - 160 million pounds = 90 million pounds

So the answer is D) 90 million pounds.