a. Explain why the introduction of a minimum price higher than the equilibrium price reduces social welfare. “A price floor occurs when a price is set by the government and businesses cannot charge less than this” (Gillespie, 2011) for the price floor to be effective it must be higher than the equilibrium price – this occurs when supply and demand are balanced by neglecting all external factors. (Figure 1) (Gillespie, 2011) The formation of equilibrium occurs when the goods requested are equivalent to the goods supplied (DS); this allows the government to set a minimum price (P1); this benefits society because for the market to be efficient the minimum price must be higher than; as when the supply produced exceeds (Q1) that demanded (Q2) by the public, this allows consumers who can afford goods or services to purchase them regardless of prices - this is beneficial for reducing social welfare since suppliers will have a quantity in excess, this pushes producers to reduce prices towards the floor price in order to increase demand for their product or service to achieve optimal profits while allowing consumers to get the best price and increase consumer surplus for the original consumers. (Figure 2)([price_controls_ceiling, nd) With the minimum price below equilibrium the demand will be excessive (Qd) compared to the supply produced (Qs), which means that for the price that buyers are willing to pay suppliers they are only willing to provide a said quantity of goods or services; causing the loss of consumer surplus and producer surplus due to the reduced quantity produced, this area then becomes a deadweight loss; this can be avoided through the reallocation of resources, although this creates a situation “where no one in an economy can get better without someone else getting worse” (Nuttall and Lobley, 2001), known as Pareto efficiency; consequently it reduces the waste of resources which can have a negative impact causing an increase in social welfare and ultimately clarifies that having a price floor above equilibrium reduces social welfare.b. Explain why a profit-maximizing firm produces output that equals marginal revenues to marginal costs (MR=MC).