Refer to Figure 4-13 which shows the market for watermelons. Suppose the government imposes a price floor of Pw. How will the price floor affect the quantity supplied, quantity demanded, and quantity exchanged?

What will be an ideal response?


The price floor will have no effect on the market outcome. An effective price floor must lie above the free-market equilibrium. Thus, in this case the market outcome will be determined by forces of demand and supply.

Economics

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Economics