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Early in the 20th century, the advent of the tractor revolutionized the production of wheat. 1. Draw a properly labeled market graph of supply and demand to show the effect that this new production technique had on the price and quantity of wheat.
2. To stabilize prices, the government established an effective price floor for wheat. On a new graph, show graphically the price floor and identify what happened to each of the following in relation to equilibrium:
3. Quantity demanded
4. Quantity supplied
5. Consumers surplus
6. Years later, the government abolished the effective price floor causing the price of wheat to return to equilibrium. 7. Identify if the price increased or decreased after the law was abolished.
8. Identify how abolishing the law affected quantity supplied and quantity demanded

Answer :

A surplus will occur from a price floor that is higher than the competitive equilibrium price. A surplus will occur from a price cap above the level of the competitive equilibrium price. A shortage will occur if the price cap is lower than the price of competitive equilibrium.

Government-mandated minimum and maximum prices for specific goods and services are known as price floors and ceilings. In severe economic circumstances, it is typically done to manage limited resources, safeguard consumers and suppliers, or both. Price floors stop a price from dropping below a specific markdown. Amount provided will exceed quantity required when a price floor is placed above the equilibrium price, leading to excess supply or surpluses.Nothing occurs. The market may continue to determine supply and price in the same manner since the floor is below equilibrium.

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