# Administers The Price Floor For Cheese

*Register to read the introduction…*The minimum price at which a few of the producers are willing to sell a pound of cheese is $0.06, and the price floor is set at $0.17 per pound. With the price floor at $0.17 per pound of cheese, producers sell 212.5 billion pounds of cheese (some to consumers and some to the USDA). How much producer surplus is created now?

The producer surplus to be created will be .11 cents ($23.37 Billion)

f. The surplus cheese USDA buys is the difference between the quantity of cheese producers sell (212.5 billions of pounds of cheese) and the quantity of cheese consumers are willing to buy at the price floor (211 billions of pounds of cheese). How much money does the USDA spend on buying up surplus cheese?

The USDA will spend approx. $255,000,000 = $0.17 per 1.5 Billion lbs of Cheese.

g. Taxes must be collected to pay for the purchases of surplus cheese by the USDA. As a result, total surplus (producer plus consumer) is reduced by the amount the USDA spent on buying surplus cheese. Using your answers for parts d, e, & f, what is the total surplus when there is a price floor?

The total surplus with a price floor is 29.45

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|Price of Ice Cream Cones |Quantity of Ice Cream Cones Demanded |

|$1 |3000 |

|$2 |2400 |

|$3 |1600 |

|$4 |800 |

a. Using the midpoint method (show your work), calculate the price elasticity of demand when the price of an ice cream cone rises from $1 to $2.

The percent change in quantity demanded would equal: 600/ (3000 + 2400)/2 x 100 = 600/2700 x 100 = 22.2%. Then there will be a change in percentage in price: 1/ (1 + 2) /2 x 100 = 1/1.5 x 100 = 66.7%. The price elasticity would equal = 22.2/28.6 = .33

b. What does this estimate imply about the price elasticity of demand for ice cream cones?

This implies that ice cream cones price elasticity of demand is inelastic.

c. Using the midpoint method (show your work), calculate the price elasticity of demand when the price of an ice cream cone rises from $3 to