Question

1. Government of Pakistan implemented price floor on current wheat crop. Explain the procedure set by government and its effectiveness. What will be the economic effects with reference to growers? graph required

Answer 1

At pre price control market equilibrum quantity is Qd and Equilibrium Price is Pe

A binding price floor at Pc is implemented.

This leads to an increse in market price, thus consumers want to purchase less and porducer's want to sell more of wheat.

At Pc quantity demanded = Qd and Quantity Supplied = Qs

Quantity supplied > Quantity demanded i.e there is a surplus.

This surplus (cd) will be bought by the government

Thus wheat producers of Pakistan get higher prices for the wheat , helping them make ends meet.

Price floor is often essentital when crop growth is high and marginalised farmers get very low prices for their produce, this is especially observed in LDC's and developing countries.

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