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Price floors and market equilibrium

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Starting from the original supply and demand positions, show what happens if the government puts a price floor above the market (equilibrium) price to help producers of root beer. Will this policy help producers? Explain.

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This solution is comprised of a detailed explanation of how price floors relate to market equilibrium. The solution contains two figures.

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A price floor is a restriction that government imposes to prohibit the price from falling below a certain level. If the price floor is above the market equilibrium price then in this situation, ...

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  • MBA, Indian Institute of Finance
  • Bsc, Madras University
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