Suppose that, in a small country, the equilibrium price of corn is $300 per ton and that the government establishes a
Suppose that, in a small country, the equilibrium price of corn is $300 per ton and that the government establishes a price floor at $400 per ton by promising to buy any resulting surplus. A few years later, the demand for corn increases because a foreign country removes a quota and begins importing five tons of corn per year, regardless of price. After this increase in the demand, what is the impact of the $400 price floor on the market for corn?
1. the price floor will have no impact on the market for corn
2. the price floor will cause the demand for corn to shirt to the left
3. the price floor will now cause a shortage of corn
4. the price floor will still cause a surplus of corn to be produced