The Emperor of Gondwanaland mu

Suppose that the Gondwanaland Chairman of Production, who sets the governmental price floor for gosum berries, in an effort to assist the gosum berry producers to have a higher income, set the price floor at \$70 per barrel. In that particular year, the amount of gosum berries produced at the \$70 price floor was 700 barrels per month. To support the price of gosum berries, the Chairman of Production’s Office had to purchase 400 barrels per month. The accompanying chart and diagram shows supply and demand curves illustrating the market for Gondwanaland gosum berries.

 Price Quantity Supplied Quantity Demanded \$120 1,200 \$110 1,100 \$100 1,000 0 \$90 900 100 \$80 800 200 \$70 700 300 \$60 600 400 \$50 500 500 \$40 400 600 \$30 300 700 \$20 200 800 \$10 100 900 \$0 0 1,000

The accompanying diagram shows supply and demand curves illustrating the market for Gondwanaland gosum berries. Utilizing this information, answer the following questions.

1. The Emperor of Gondwanaland must collect taxes from the people to pay for the purchases of surplus gosum berries by the Chairman of Production’s Office. As a result, total surplus (producer plus consumer) is reduced by the amount the Chairman of Production’s Office spent on buying surplus gosum berries. Using your answers for problems 4, 5, and 6 above, what is the total surplus when there is a price floor? Show your calculations.
1. How does this compare to the total surplus without a price floor from problem 3 above? Is it more, or less, and by how much?

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