Economics (AS & A Level) · Feb / March 2021 · Paper 12 · Question 6
9708Methods and effects of government intervention in markets
The diagram shows the market for sugar which is initially in equilibrium at a price of OP. [diagram: price on vertical axis, quantity on horizontal axis; supply curve S and demand curve D intersecting at R with price P and quantity M; price levels P1 and P2 marked; points S, T, U marked at price P1 with quantities L, M, N respectively] A government then fixes a maximum price of OP1. What will happen as a result?
- Aa reduction in farmers' revenue equal to PRSP1
- Bexpenditure on sugar will be equal to PRMO
- Cfarmers' revenue would be P1UNO
- Dproducer surplus will be P1SP2
As printed in the paper
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Correct answer: D. producer surplus will be P1SP2
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