Market researchers have studied the market for milk, and their estimates for the supply of and the
Question:
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:
Price per gallon | Quantity demanded (millions of gallons) | Quantity supplied (millions of gallons) |
---|---|---|
$10 | 100 | 500 |
8 | 200 | 400 |
6 | 300 | 300 |
4 | 400 | 200 |
2 | 500 | 100 |
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.
1. What objective could the government be trying to achieve by establishing such a price ceiling?
2. What are the advantages and disadvantages of the price system?
3. Consider this statement: “Government involvement in markets is inherently inefficient.” Do you agree or disagree? Explain.
Applied Regression Analysis and Other Multivariable Methods
ISBN: 978-1285051086
5th edition
Authors: David G. Kleinbaum, Lawrence L. Kupper, Azhar Nizam, Eli S. Rosenberg