The government has decided that the free-market price of sugar is too low, and therefore to help the sugar industry, a binding price floor is imposed.
a. use a supply and demand diagram to show the effect of this policy on the price and quantity sold of sugar.
b. sugar farmers complain that this price floor has actually reduced their total revenue. is this possible? Explain (Hint: elasticity)
c. In response to farmers' complaints, the government agrees to purchase all of the surplus sugar at the price floor. Who benefits from this new policy? Who loses?