Suppose that the demand curve for wheat is
D
(
p
) = 120
−
10
p
, and the supply curve is
S
(
p
) = 10
p
. The government imposes a price floor of $8 per unit.
1. Draw a clearly marked graph to illustrate the demand, supply,competitive equilibrium
point (without government intervention), and the pricefloor.
2. Compute the equilibrium price and quantity after the pricefloor and interpret the results.
3. Explain who benefits and who loses from this measure and byhow much. What can you
say about the welfare of the society as a whole?
