The market demand and supply functions for milk are:QD=12525PandQS=25+ 75P, where price is price per liter and quantity is measured in millions of liters of milk. Suppose that a price floor of $2.00 per liter is implemented in the market.

a. Calculate the change in producer and consumer surplus relative to the perfect competition benchmark. Is the market more efficient before or after the price floor is implemented?

b. Is there a shortage or surplus of milk at the given price? How large (in number of units) is this shortage or surplus?

c. If the government purchases all the excess units at $2.00, calculate the milk expenditures by government. Does the increase in producer surplus due to the government-funded price support exceed government spending on excess milk? What group (consumers, producers, or both) would you expect to support the policy of a price floor paired with government purchase support?