IB Econ: Micro Exam Practice 1

A government wants to provide income support for farmers, and is debating whether to provide subsidies or price floors for agricultural products with government purchases of the excess supplies.

(a) Explain the effects of the two policies on the quantity of the good produced and on allocative effi ciency. [10 marks]

(b) Compare and contrast the effects of each policy on market outcomes and stakeholders. [15 marks]

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