Consider a market for fish whose market demand and market supply for fish are specified as qd = 300 - 2.5 p and qs = - 20 + 1.5 p respectively. The government decides to impose a price floor of $50 per ton. What would be the resulting market distortion?

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Business

Lola Chan

13 October, 03:55

Consider a market for fish whose market demand and market supply for fish are specified as qd = 300 - 2.5 p and qs = - 20 + 1.5 p respectively. The government decides to impose a price floor of $50 per ton. What would be the resulting market distortion?

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Cheyenne Spence · Answer 1

There would be no market distortion. Solving for p (300 - 2.5p = - 20 + 1.5p) gets the equilibrium price of $80. At $50 a ton the price floor is below the equilibrium and is therefore not binding.