Country M is one of the largest fresh milk producers in the world. A recent virus outbreak has caused many cows to get sick, which greatly affected the supply chain for milk. This has resulted in massive shortages of fresh milk, leading to an increase in prices. The government is trying to avoid prices of milk from sky-rocketing and decided to introduce a price ceiling. Answer the following questions: For the price ceiling to be effective, would it need to be above or below the equilibrium price? . Type A for Above or B for Below. Looking at the market for fresh milk, initially (before the price ceiling), the market is at equilibrium with a price of $1.25 per litre of milk and a quantity of 0.8 million litres sold daily. Country M decided to introduce a price ceiling at $1 per litre of milk. Assume all the producers remain in the market and cut back their production, the market quantity supplied decreased to 0.55 million litres at the ceiling price. What is the value of the loss in producer surplus, compared to the initial market equilibrium condition, when the price moves from $1.25 to $1 per litre?

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For the price ceiling to be effective it would need to be B Below the equilibrium price In this situ... View the full answer