The Market System as an Efficient Mechanism for Information

Problems

Imagine that to preserve the traditional way of life in small fishing villages, a government decides to impose a price floor that will guarantee all fishermen a certain price for their catch.

  1. Using the demand and supply framework, predict the effects on the price, quantity demanded, and quantity supplied.
  2. With the enactment of this price floor for fish, what are some of the likely unintended consequences in the market?
  3. Suggest some policies other than the price floor to make it possible for small fishing villages to continue.

What happens to the price and the quantity bought and sold in the cocoa market if countries producing cocoa experience a drought and a new study is released demonstrating the health benefits of cocoa? Illustrate your answer with a demand and supply graph.