In 2014, the U.S. House of Representatives approved a new farm bill establishing the Margin Protection Program (MPP) for dairy producers. Assume that the program has effectively created a price floor for milk at $0.18 per pound. Use the following additional information to answer the following questions:Without the price floor, the equilibrium price of milk is $0.15 per pound, and the equilibrium quantity is 200 billion pounds of milk.The supply curve intersects the price axis at $0.05 and the demand curve intersects the price axis at $0.25.At the price floor of $0.18, the quantity supplied is 260 billion, and the quantity demanded is 140 billion.To support the price floor, the USDA buys up the 120 billion pounds of excess milk. When the USDA purchases the excess supply, the milk soon spoils and is discarded. As a result, the total surplus is reduced by the amount the USDA spent buying surplus milk. Assume that the taxes used to pay for the USDA purchases are not levied on the market for milk but from other sources. What is the total surplus when there is a price floor? Do not round your answer.

The equilibrium price and equilibrium quantity of a good sold in the market are determined by thedemand and supply. The equilibrium occurs when the quantity demanded is equal to the quantity supplied.Consumer surplus is the difference between the price that the consumers are willing to pay for the product and the market price. The producer surplus is the difference between the market price and the price at which the producers are willing to sell the product.The equilbrium price of milk is $0.15. The price floor is $0.18. The equilbrium quantity is 200 billion pounds. The quantity demanded at the price floor is 140 billion pounds and the quantity supplied is 260 billion pounds. The excess amount of 120 billion is collected by the government.The consumer surplus is the area between the demand curve and the market price and quantity demanded. The producer surplus is the area between the supply curve, market price, and the quantity supplied.The government collects 120 billion at $0.18. The total amount spent by the government is calculated as,The total surplus is the amount spent by the government subtracted from the sum of consumer surplus and producer surplus.Therefore the total surplus is $0.2 billion.

Answered: In 2014, the U.S. House of…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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In 2014, the U.S. House of Representatives approved a new farm bill establishing the Margin Protection Program (MPP) for dairy producers. Assume that the program has effectively created a price floor for milk at $0.18 per pound. Use the following additional information to answer the following questions:

Without the price floor, the equilibrium price of milk is $0.15 per pound, and the equilibrium quantity is 200 billion pounds of milk.
The supply curve intersects the price axis at $0.05 and the demand curve intersects the price axis at $0.25.
At the price floor of $0.18, the quantity supplied is 260 billion, and the quantity demanded is 140 billion.
To support the price floor, the USDA buys up the 120 billion pounds of excess milk.

When the USDA purchases the excess supply, the milk soon spoils and is discarded. As a result, the total surplus is reduced by the amount the USDA spent buying surplus milk. Assume that the taxes used to pay for the USDA purchases are not levied on the market for milk but from other sources.

What is the total surplus when there is a price floor? Do not round your answer.

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