Suppose the U.S. government decides that the incomes of dairyfarmers should be

Chapter 2, Problem 15

(choose chapter or problem)

Suppose the U.S. government decides that the incomes of dairyfarmers should be maintained at a level that allows the traditionalfamily dairy farm to survive. It therefore implements aprice floor of $1 per pint by buying surplus milk until the marketprice is $1 per pint. Use the accompanying diagram to answerthe following questions.a. How much surplus milk will be produced as a result of thispolicy?b.What will be the cost to the government of this policy?c. Since milk is an important source of protein and calcium, thegovernment decides to provide the surplus milk it purchasesto elementary schools at a price of only $0.60 per pint. Assumethat schools will buy any amount of milk available atthis low price. But parents now reduce their purchases ofmilk at any price by 50 million pints per year because theyknow their children are getting milk at school. How muchwill the dairy program now cost the government?d.Give two examples of inefficiencies arising from wasted resourcesthat are likely to result from this policy. What is themissed opportunity in each case?