The following graph shows the market for milk. Suppose the government introduces a variety of policies that set floor prices for milk at $3. Without government intervention, the market price of milk would average $2 per gallon for a market quantity of 100 million gallons per month. In such a case, total outlays by consumer-taxpayers equal _____, though they consume _____ fewer gallons.
Figure 16.1

Question

The following graph shows the market for milk. Suppose the government introduces a variety of policies that set floor prices for milk at $3. Without government intervention, the market price of milk would average $2 per gallon for a market quantity of 100 million gallons per month. In such a case, total outlays by consumer-taxpayers equal _____, though they consume _____ fewer gallons.​ ​
Figure 16.1
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Quizplus · Accepted Answer

The introduction of a floor price of $3 per gallon of milk will cause a surplus in the market. The new quantity supplied would be 120 million gallons per month while the new quantity demanded would be 80 million gallons per month. The difference between the quantity supplied and quantity demanded will create a surplus of 40 million gallons per month (120 million gallons - 80 million gallons).

Consumer-taxpayers will have to pay the higher equilibrium price of $3 per gallon, resulting in a total outlay of $450 million per month (150 million gallons x $3). However, because of the higher price, they will purchase 25 million fewer gallons of milk, resulting in a total consumption of 75 million gallons per month (100 million gallons - 25 million gallons).

Therefore, the correct answer is D.

The Following Graph Shows the Market for Milk