Based on the article, "Milk Prices to Rise; Southland to Be Hit Hardest." Los Angeles Times, September 25, 1997.

Part A:
   Step 1: In the lefthand diagram below, illustrate the consequence of the events cited in Passage B of the article. Label the new free-market price as PB.
   Step 2: Suppose you were a state government regulator of raw milk prices. Indicate in your diagram the price you would recommend for raw milk after the events of Passage B.
   Step 3: How does the price you recommended compare to the free-market price you indicated in Step 1? Is government regulation actually necessary to establish that price? Why or why not?
 
 
 
 

   Step 4: Now add a price floor to your diagram which illustrates the likely implications of Passage A of the article. Label the price floor PF. Comparing PB and PF: Use "\\\" to shade in the consumer surplus lost, "///" to shade in the producer surplus lost, and "|||" to shade in the producer surplus gained.

Part B:
  The righthand diagram below illustrates the California raw milk market with potential supply from both California and Arizona producers.
   Step 1: When both producers supply the market: consumer surplus=______; producer surplus=______; the portion of the total producer surplus going to California suppliers=______
   Step 2: Now indicate the consequences of Passage C in the article:
Does consumer surplus rise or fall? ______   By how much? ______
Does the producer surplus of California suppliers rise or fall? ______   By how much? ______