Economics for Today 9th Edition by Irvin Tucker

Exercise 8

Market researchers have studied the market for milk, and their estimates for the supply of and the demand for milk per month are as follows:
a. Using the data, graph the demand for and the supply of milk. Identify the equilibrium point as E , and use dotted lines to connect E to the equilibrium price on the price axis and the equilibrium quantity on the quantity axis.
b. Suppose the government enacts a milk price support of $8 per gallon. Indicate this action on your graph, and explain the effect on the milk market. Why would the government establish such a price support?
c. Now assume the government decides to set a price ceiling of $4 per gallon. Show and explain how this legal price affects your graph of the milk market. What objective could the government be trying to achieve by establishing such a price ceiling?