In response to cheese producers’ complaints, the government agrees to purchase all the surplus
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The government has decided that the free-market price of cheese is too low. c. In response to cheese producers’ complaints, the government agrees to purchase all the surplus cheese at the price floor. Compared to the basic price floor, who benefits from this new policy? Who loses? |
Here is a tip:
Taxes paid by the citizens of a country are a major source of revenue for the government.
Explanation
Since the government purchased all the surplus of cheese at the binding price floor, producers earn a higher revenue from it. This is because they will be able to sell a higher quantity of goods.
The government purchases the surplus of cheese using the government tax revenues. Thus, it is the taxpayers who lose here.
The prices paid by consumers remain the same when compared to the basic price floor. As a result, they are in the same position as before.
Verified Answer
Producers of cheese benefit from this policy and the taxpayers lose.
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