a. See graph

b. CS shaded in light blue, PS

shaded in tan, TS shown in pink criss-cross pattern.

c. For the price to drop 10%, the D must shift in to D'. This says that income elasticity is greater than zero and fresh milk is a normal product.

d. In this case, CS, PS, and TS would all decrease. This would

be a deadweight loss in welfare.

e. As price of fresh milk drops, powdered milk can be made at a lower price, so supply shifts

out.

f. The price floor is at the equilibrium price of the original supply and demand curve

What part of the graph is the amount the gov will buy?

g. $91 million is dead weight

loss

What part of the graph this?

h. This is inefficient because the firm (farm) is producing more product than what is needed. There is dead weight loss and MC>MB. It is equitable because farmers

must be paid a sustainable income and the price floor ensures that this is possible.

g. The supply of milk is perfectly inelastic because the same quantity is produced no matter what the price is.