Please write a 4-5 page essay that addresses the following questions on the market for milk. (for this case, keep it simple, don’t worry about whether the milk is organic, 2%, whole, skim etc.) 1. Explain what happens to price and quantity of milk when the following events occur: a. An advertising campaign highlights scientific studies that find drinking milk can help reduce weight gain. b. There is a mad cow disease epidemic. c. The price of milk decreases. d. The government decides to implement a price ceiling on milk. For each event, you must specify how it effects either demand, quantity demanded, supply, or quantity demanded. It is also important to demonstrate how the change will affect the market demand or supply curve. Also, be sure to state any assumption you are making regarding the relationship of the event and milk. e.g. There is a sale on cookies. Assume that cookies are a complement to milk. If cookies are cheaper, then the consumer will increase quantity demanded of cookies. If consumers buy more cookies, then there will be a need for more milk to go with the cookies so the demand for milk will increase. This event causes a shift of the demand curve to the right. The shift will cause price and quantity of milk to increase. 2. Do some research on your own and explain the advantages and disadvantages to price controls (as in question 1d). Be sure to cite your resources. In general, do you think the government should intervene in the market? Examples include minimum wage, rent control, etc. 3. Read section 1 and 2 of Chapter 5. What type of elasticity (elastic, inelastic, zero, etc.) do you think milk has based on the major determinants of elasticity. Explain. Be sure to state the major determinants of elasticity. 4. Based on your answer above, what happens to total revenue when the price of milk is increased. Why? Recall from the powerpoint presentation: Inelastic goods (goods in which consumers are less responsive to changes in price): e < 1 Elastic goods (goods in which consumers are more responsive to changes in price): e >1 In this course, we use the absolute value of elasticity. It is always a calculated value of -1 due to the law of demand.
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