Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram must have all axes and curves clearly labeled and must show directional changes. If the question prompts you to “Calculate,” you must show how you arrived at your final answer. Soybeans are produced and sold in a perfectly competitive market. The fertilizers used in soybean production generate a negative externality by seeping liquid contaminants into local rivers. (b) Assume the government sets a binding price floor such that the quantity demanded in the market is between QS and QC. (i) What will happen to the quantity produced? (ii) Will the price floor reduce the deadweight loss? Explain.

Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram must have all axes and curves clearly labeled and must show directional changes. If the question prompts you to “Calculate,” you must show how you arrived at your final answer.

Soybeans are produced and sold in a perfectly competitive market. The fertilizers used in soybean production generate a negative externality by seeping liquid contaminants into local rivers.

(b) Assume the government sets a binding price floor such that the quantity demanded in the market is between QS and QC.

(i) What will happen to the quantity produced?

(ii) Will the price floor reduce the deadweight loss? Explain.