The above figure shows the demand and supply curves in the market for milk. Currently the market is in equilibrium. If the government establishes a $4 per gallon price support, estimate the change in p, Q, and social welfare
What will be an ideal response?
Price rises to $4 per gallon. Consumers purchase only 500 gallons of milk. The government purchases 1,000 gallons of milk to support the price at $4. Thus a total of 1,500 gallons is produced. The loss in social welfare equals 1,000 gallons of milk at $4/gallon (equals $4,000 ) less the producer surplus above the old demand curve up to a price of $4 (which is $500 ). The loss in social welfare is $3,500.
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a. Maximized b. Minimized c. Zero d. Equal to the discount rate e. Equal to price
Refer to the table above. If countries were to trade along the lines of comparative advantage
A) B would export Y to A. B) A would import X from A. C) neither country would want to trade. D) More information is needed to determine the pattern.