In the United States, price floors are commonly used to support farmers
In the United States, price floors are commonly used to support farmers,
such as for dairy products. Assume several U.S. trading partners impose tariffs on dairy products exported from the United States. The tariffs are effective and are reducing dairy exports from the United States and have pushed the domestic equilibrium price of milk below the price floor.
Using a supply and demand model, illustrate what happens to the U.S. domestic price of milk, quantity of milk sold in the United States, and any surplus or shortage of milk. Be sure to support your graph with a written explanation.
How would I graph this using a supply and demand model? I show the domestic price of milk to be above equilibrium, qty supplied will exceed qty demanded, and that a surplus of milk will result.