In 1991, the price of milk fell by 30%. Senator Leahy of Vermont, a big milk-producing state, supported a law in the U.S. Congress to put a floor on the price of milk. The floor was $4.15 per gallon of milk. The market price at the time was $2.99 per gallon of milk. a. Draw a supply and demand diagram for milk showing the equilibrium price and quantity before the price floor went into effect. You will have an actual number for price but you can just indicate Q₁ for the quantity. b. Add a line straight across your graph at the level of the price floor proposed by Senator Leahy. Describe what would happen in the market as a result of the price floor. c. Explain why the dairy farmers supported the legislation, while consumer groups opposed it.

In 1991, the price of milk fell by 30%. Senator Leahy of Vermont, a big milk-producing state, supported a law in the U.S. Congress to put a floor on the price of milk. The floor was $4.15 per gallon of milk. The market price at the time was $2.99 per gallon of milk. a. Draw a supply and demand diagram for milk showing the equilibrium price and quantity before the price floor went into effect. You will have an actual number for price but you can just indicate Q₁ for the quantity. b. Add a line straight across your graph at the level of the price floor proposed by Senator Leahy. Describe what would happen in the market as a result of the price floor. c. Explain why the dairy farmers supported the legislation, while consumer groups opposed it.

Principles of Microeconomics

7th Edition

ISBN:9781305156050

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter4: The Market Forces Of Supply And Demand

Section: Chapter Questions

Problem 8PA

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