Explain how the cap affects consumers and producers

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1. Suppose that the U.S. government caps the price of milk at $1 per gallon. Prior to the cap milk sold for $1 per gallon. Picture the effects of the price cap using a supply and demand graph. Explain how the cap affects consumers and producers.

2. a. What is an externality?

b. Why might externalities lead a firm to discharge too much pollution into a river?

c. Congress has passed a law that limits the level of cotton dust within textile factories. Why might a textile firm allow too much cotton dust within its workplace?

Reference no: EM13921880

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