2. In 1991 the price of milk fell 30 percent. Senator Leahy of Vermont, a big milk-producing state, supported a law in the U.S. Congress to put a floor on the price. The floor was $13.09 per hundred pounds of milk. The market price was $11.47.

a. Draw a supply and demand diagram for milk and show how the equilibrium price and quantity would be determined in the absence of the price floor.

b. Using the diagram you just drew, explain the effects of the legislation.

c. The dairy farmers supported the legislation, while consumer groups opposed it. Why?

d. Economists frequently argue against price floors because of the surpluses and associated problems that they create. What are some of the potentially negative side effects of interference in the milk market?