Question

4. Special-interest groups, lobbying, and rent-seeking behavior The following graph shows the market for milk. Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph. Note: Once you enter a value in a white field, the graph and any corresponding amounts in the grey field will change accordingly. Graph Input Tool Supply 112 Price (Dollars per gallon) Quantity demanded (Millions of gallons) Surplus (Millions of gallons) Quantity supplied (Millions of gallons) 22 Shortage (Millions of gallons) 90 PRICE (Dollars per gallon) Demand 0 15 135 30 45 60 75 90 105 120 QUANTITY (Millions of gallons)

First option: $4- $5- $6

Second option: 0 million- 67 million- 100 million- 95 million

Third option: $603 million- $909 million- $306 million- $54 million

Answer 1

The market price of milk without government intervention is where the supply and demand curve intersect, that is, when Price = $6 per gallon.

When the price of milk is $9 per gallon, the quantity supplied is 97 and quantity demanded is 30. The government would need to buy 67 million gallons of milk which will cost the government = 67*9 = 603 million dollars.

The legistlation would be easily defeated as consumers won’t be able to afford a basic necessity like milk and will not reelect their representatives. Option b) is true.