Research suggests that taxing pizza and soda would reduce the incidence of obesi

Question

Research suggests that taxing pizza and soda would reduce the incidence of obesity in the U.S.A. Suppose you were required to choose between a price ceiling and a floor price to achieve the same result. which would you choose, and would you set it above or below the equilibrium price? Given your choice of policy, would you expect a shortage or surplus in the market for pizza? Illustrate on a single graph the effects of your chosen policy. Ensure that you clearly lable the following points:

a) actual price and quantity given your chosen policy (Pa,Qa).
b) Equilibrium price and quantity in the absence of your chosen policy (P*,Q*)

Explanation / Answer

1) Price Floor 2) Above Equilibrium Price 3) Surplus 

 

http://www.college-cram.com/study/economics/files/2010/03/price-floor.gif

If you look at this graph it will tell you the exact same stuff. If the price floor were set at $8, the quantity sold would be 2. If the market were able to self regulate the price would be $5 and the number of goods sold would be 5.

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