The above figure shows the demand and supply curves in the market for

The above figure shows the demand and supply curves in the market for milk. Currently the market is in equilibrium.

If the government establishes a $2 per gallon price ceiling to ensure that children are nourished, estimate the change in p, Q, and social welfare.

ANSWER

At a price of $2, only 500 gallons are produced. The deadweight loss equals
[(1000 – 500 ) ∗ (4 – 2 )]/2 = $500.