QUESTION 1 The table below shows the demand and supply schedule for milk in a hypothetical country called Microland. Price per litre (S) 10 9 8 7 6 Quantity Demanded in 000 Quantity Supplied in 000 litres (per Month) litres (per month) 0 27 25 23 20 8 10 12 14 16 18 3 17 15 12 10 7 5 A. Construct the demand and supply curves for milk to show the market equilibrium for milk. (10 marks) B. Given a new govemment policy in Microland, milk producers have started to obtain subsidies from the government. Construct a NEW diagram to show the impact of the subsidy on the market equilibrium (6 marks) C

. Explain the effect of the subsidy on the market forces and the equilibrium point. (3 marks) D. Describe THREE (3) other changes that could have the same effect on market supply of milk as the imposition of the subsidy in (B) above. (6 marks) Page 2 / 2 Q + (Total 25 marks)