Government intervention

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Question 14

The government introduces a legally binding minimum price floor ( $PminP_{\text{min}}$ ) on agricultural crops to support local farmers, as shown in the diagram below.

Agricultural Market Diagram

Which of the following describes the immediate effect of this intervention on the market?

Demand contracts from $Q_e$ to $Q_1$ and supply expands from $Q_e$ to $Q_2$ , resulting in a market surplus of $Q_2 - Q_1$ .

Demand expands from $Q_e$ to $Q_2$ and supply contracts from $Q_e$ to $Q_1$ , resulting in a market shortage of $Q_2 - Q_1$ .

Demand contracts from $Q_e$ to $Q_1$ and supply contracts from $Q_e$ to $Q_2$ , resulting in a market surplus of $Q_2 - Q_1$ .

Demand expands from $Q_e$ to $Q_1$ and supply expands from $Q_e$ to $Q_2$ , resulting in a market shortage of $Q_e - Q_1$ .

Government intervention Questions

A Level
Economics
Government intervention

A Level
Economics OCR
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