Hkcee 2010 Econ Paper 2 Q2 !!better!! -

The government imposes a minimum price (price floor) of $68 per tonne to support farmers’ income. Students were then asked five sub-questions. Requirement: Find the free market equilibrium without intervention.

A price floor is effective (binding) only if set above the equilibrium price. Since equilibrium price is already $68, a minimum price at $68 is non-binding . The market will continue to clear at the equilibrium quantity of 16 tonnes. No surplus or shortage occurs. hkcee 2010 econ paper 2 q2

The government must either buy the surplus (10 tonnes) or restrict production to avoid waste. Part (d): Calculate Changes in Consumer & Producer Surplus (6 marks) This is the heart of the question. Students need to compute consumer surplus (CS), producer surplus (PS), and deadweight loss (DWL) after the price floor compared to free market equilibrium. The government imposes a minimum price (price floor)

Alternatively, geometric: PS_new = rectangle (0 to 10, price 80 to supply at Q=10? Wait, need triangle + rectangle). Better: PS = area above supply and below price. At Q=10, supply price = ( 20+30=50 ). So PS = rectangle (10 × (80-50)) + triangle beneath that? No – actually supply is linear: PS = area between P=80 and supply from Q=0 to 10 = trapezoid: average height = (80-20 + 80-50)/2 = (60+30)/2 = 45; area = 45 × 10 = 450. Yes. A price floor is effective (binding) only if