Kaplan MICROECONO BU224 - Unit 6 Assignment: Price Floor

Unit 6

AB224 | Microeconomics

Unit 6 Assignment: Price Floor
Name:
Course Number and Section: AB224–0X
Date:
General Instructions for all Assignments
1. Unless specified differently by your course instructor, save this assignment template to your
computer with the following file naming format: Course number_section number_Last_First_unit
number
2. At the top of the template, insert the appropriate information: Your Name, Course Number and
Section, and the Date
3. Insert your answers below, or in the appropriate space provided for in the question. Your answers
should follow APA format with citations to your sources and, at the bottom of your last page, a list of
references. Your answers should also be in Standard English with correct spelling, punctuation,
grammar, and style (double spaced, in Times New Roman, 12–point, and black font). Respond to
questions in a thorough manner, providing specific examples of concepts, topics, definitions, and
other elements asked for in the questions.
4. Upload the completed Assignment to the appropriate Dropbox.
5. Any questions about the Assignment, or format questions, should be directed to your course
instructor.
In this Assignment, you will be assessed on the following outcome:
AB224-2: Examine changes in price and quantity caused when governments take actions to modify
market outcomes.
Assignment
In a perfectly competitive market, the equilibrium price and quantity represent the most efficient
operation of that market. Optimum efficiency means that sellers cannot be made better off without, at
the same time, making buyers worse off, and that buyers cannot be made better off, without making
the sellers worse off. This Assignment presents a scenario in which a government tries to improve the
financial position of the sellers, in such a perfectly competitive market, by instituting a legal price floor
that is significantly above the equilibrium price. A price floor is the lowest price for which a seller can
legally sell the product.
In this Assignment, you will focus on calculating the consumer surplus, producer surplus and total
surplus both before a price floor is established and after a price floor is enacted. You will also
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demonstrate an understanding of the impact on the entire economy, based on any changes in taxes
required, if the government is to purchase any extra product that is not sold to consumers.
Questions
Suppose that the Gondwanaland Chairman of Production who sets the governmental price floor for
gosum berries, in an effort to assist the gosum berry producers to have a higher income, set the price
floor at $70 per barrel. These berries are a food staple of the Gondwanalandians and contributes
directly to their health and long life (average lifespan of 150+ active years). In that particular year the
amount of gosum berries produced at the $70 price floor was 700 barrels per month. To support the
price of gosum berries, the Chairman of Production’s Office had to purchase 400 barrels per month.
The accompanying diagram shows supply and demand curves illustrating the market for
Gondwanaland gosum berries.

a. In the absence of a price floor, the maximum price that a few of the consumers are willing to pay
up to $100 per barrel of gosum berries. The market equilibrium (E) price is $50 per barrel. How
much consumer surplus is created, when there is no price floor? Show your calculations.

b. How much producer surplus when there is no price floor? Show your calculations.

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Unit 6

AB224 | Microeconomics

c. What is the total surplus when there is no price floor? Show your calculations.

d. After the price floor is instituted, the legal minimum price that can be charged by suppliers is $70
per barrel. The maximum price that a few of the consumers are still willing to pay is $100 per
barrel of gosum berries. With the price floor at $70 per barrel, consumers buy 300 barrels of
gosum berries per month. How much consumer surplus is created with the price floor? Show
your calculations.

e. How much producer surplus when there is no price floor? Show your calculations.

f. The Chairman of Production’s Office buys any barrels of gosum berries that the producers are
not able to sell. With the price floor, the producers sell 300 barrels per month to consumers, but
the producers, at this high price floor, produce 700 barrels per month. How much money does the
Chairman of Production’s Office spend on buying up surplus cheese? Show your calculations.

g. The Emperor of Gondwanaland must collect taxes from the people to pay for the purchases of
surplus gosum berries by the Chairman of Production’s Office. As a result, total surplus (producer
plus consumer) is reduced by the amount the Chairman of Production’s Office spent on buying
surplus gosum berries. Using your answers for parts d, e, and f, what is the total surplus when
there is a price floor? Show your calculations.

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h. How does this compare to the total surplus without a price floor from part c?

-------------------------------------------References:

Unit 6 Assignment: Price Floor Grading Rubric
Content
Full Assignment
Overall Writing:
Correct coversheet information at the top of 1st
page
APA format for answers
Correct citations
Standard English, no errors
At least one, or more, references
Answers: provides complete information
demonstrating analysis and critical thinking:
Individual Questions:
a. - Calculate total consumer surplus with no
price floor?
b. - Calculate total producer surplus with no
price floor?
c. - Calculate total surplus with no price floors?
d. - Calculate total consumer surplus with a $70
price floor?
e. - Calculate total producer surplus with a $70
price floor?
f. - How much must be paid to purchase the
surplus cheese?
g. - Calculate total surplus with a $70 price
floor?

Percent
Points
Possible Possible
100%
80
20%

16
5%
3%
3%
4%
5%

80%

4.00
2.40
2.40
3.20
4.00
64

10%

8.00

10%
10%

8.00
8.00

10%

8.00

10%

8.00

10%

8.00

10%

8.00
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h. - How does the total surplus with a $70 price
floor differ from no price floor?

10%

8.00

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