Answered: Russia trades chocolate with France,…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Russia trades chocolate with France, where it is a staple. The government of Russia places a price floor on their market for chocolate (assume that it is binding). They buy the surplus of 4 units from the producers and sell it in France. Refer to the graph to determine what happens when the government then sells the excess on the world market (to France).

The government of Russia charges $7 in order to sell four units of chocolate in France. Determine who is better off and worse off.

Classify the scenarios according to whether consumers and producers are better off or worse off.
Better off
Producers of chocolate in Russia
Consumers of chocolate in France
Answer Bank
Consumers of chocolate in Russia
Worse off
Producers of chocolate in France

Price
$10,
9
8
7
a
5
4
3
2
1
Market for chocolate in France
0 1 2 3
Supply
Demand
4 5 6 7 8 9
10
Quantity

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