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Question 3 Revise the set of notes included in Units 1 to 3 before attempting this question

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Question 3 Revise the set of notes included in Units 1 to 3 before attempting this question. The government wishes to support the income of existing dairy farmers. It plans to do so through the increase of demand, by legislating that every state school should provide a glass of milk to every student during morning and afternoon classes. Assume that the dairy farming industry has very low barriers to entry, i.e. it is very easy for new entrepreneurs to acquire cows and increase the supply of milk. Answer the following questions: 3.1 Draw a graph indicating the original market for milk (i.e. with a standard demand curve, and a supply curve indicating that supply is very elastic). Mark the equilibrium point as A. Note: You can draw the graph using pen and paper, and scan it in or take a photograph to insert into this document. Alternatively, you can digitally create the graph directly in this document. Whichever method you decide to use, it is important that the graph is legible. 3.2 Using the graph drawn to answer Question 3.1, indicate the change that will occur due to the government’s intervention in the market. Show this by illustrating the shift in the demand curve. Mark the new equilibrium point as B. Insert your graph for Questions 3.1 and 3.2 here: 3.3 Does the price of milk increase significantly after the government intervention? Why is that the case? Your answer should be between 30 and 40 words in length. Start writing here: 3.4 In this instance, is government intervention successful in achieving the goal of supporting the income of existing dairy farmers? Justify your answer. Your answer should be between 50 and 60 words in length. Start writing here: