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March 30, 2015

Homework Help: Microeconomics

Posted by Priya on Wednesday, May 9, 2012 at 5:26pm.

The market equilibrium price for coffee beans in Ecuador is $2.75/pound, a price at which growers are unable to make a profit. Due to the lack of profits, many growers have stopped production and the output of coffee beans has fallen from 400 tons per year (capacity for the region) to 250 tons per year. As a result of pleas from the growers, the government steps in and sets a floor price for coffee beans at $3.50/pound. What market response would you expect from this government action? How would supply, demand, and price change? Use a graph to illustrate your answer.

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