The government has decided that the free-market price for milk is too low

The government has decided that the free-market price for milk is too low.

i. In an attempt to help dairy farmers increase their income the government imposes a price floor in the milk market. Use demand and supply diagrams to illustrate the impact of this policy on the price of milk and the quantity sold as well as the state of the market.

ii. Can dairy farmers be assured of an increased income? Explain your answer.

iii. Would it be a good decision for the government to purchase all the surplus product? Explain your answer.

Here’s the SOLUTION

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