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Government intervention

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Question 3

The diagram below shows the market for organic oats, where the domestic demand and supply curves are given by:

Qd=240−4P Q_d = 240 - 4P Qd​=240−4P Qs=−40+6P Q_s = -40 + 6P Qs​=−40+6P

where Q Q\,Q is the quantity of oats in tonnes and P P\,P is the price per tonne in £.

Market for organic oats

To support local farmers, the government decides to intervene by introducing a minimum price (price floor) of £35 per tonne. Under this policy, the government guarantees to buy any surplus (excess supply) at this minimum price to maintain the price floor.

What is the total cost to the government of buying up this excess supply?

£1,225

£4,480

£2,450

£5,950

Government intervention Questions

  1. A Level
  2. /Economics
  3. /Government intervention