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Assume milk is produced and sold in a perfectly competitive market. To help milk producers, the government imposes an effective price floor on milk. Assume
Assume milk is produced and sold in a perfectly competitive market. To help milk producers, the government imposes an effective price floor on milk. Assume milk producers continue to sell milk only to households after the imposition of the price floor.a Draw a correctly labeled graph for the milk market and show the price floor, labeled P and the quantity of milk purchased by households, labeled Qb Is the market for milk allocatively efficient after the price floor is imposed? Explain.c On your graph from part a shade the area that represents total producer surplus after the pricefloor is imposed.d Assume the absolute value of price elasticity of demand for milk is throughout the price range. Would total consumer spending on milk increase, decrease, not change, or be indeterminate after the imposition of the price floor? Explain.e Assume the price floor in the milk market caused the equilibrium price of eggs, a related consumption good, to increase.i Draw a correctly labeled graph of the egg market, and show the effect of the price floor in the milk market on the egg market.ii What economic term describes the relationship between milk andegg?
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