Question

Click on the icon to read the news dip, then answer the following questions Price bollars per gallon) The graph shows the market for milk in Venezuela when a price control is in effect Draw a shape that represents: 1) consumer surplus Labelit CS 2) producer surplus, Labelit PS, 3) the deadweight loss. Label DWL. Also draw a shape that show the resources lost from time spend in line Labelit Loss Moving from a milk market with no price controls to a mi with price controls producer surplus Consumer surplus and O A r ses increases OB Increases, decreases OC. decreases, des OD. decreases increases 0 100 200 300 400 Dually ignons 500 600 700 In the market for cheese >> Draw only the objects specified in the question O A a deadweight loss anses OB. the price is below the market equilibrium OC. consumer surplus decreases and producer surplus decreases D. total surplus is maximized and no deadweight loss arises

Answer 1

Price bows per gallon) DWL Loss 0 100 2000 20000 Quantity (gallions of mi)

1), 2), 3),4) and 5)

Option B. From the below table we can observe that with price control, the consumer surplus increases and producer surplus decreases

	Before price control	After price control	Change
CS	=0.5*(300)*(60-40)=3000	=0.5*(150)*(60-50)+(150*(50-30))=3750	=3750-3000=750
PS	=0.5*(300)*(40-20)=3000	=0.5*(150)*(30-20)=750	=750-3000=-2250

Option A

From the above graph we can observe that because of price control, the deadweight loss arises