1. The local government in Jonestown is concerned about the massive increase in milk prices for low-income families. The local government is trying to push through a proposal to limit the price of milk to $3.50 per gallon. The supply and demand of milk in Jonestown is given by the following:
QD = 20,000 - 2500P
QS = -10,000 + 5000P
where Q is the total output of the industry and P is the price per gallon.
a. Determine the price-output combination in this market.
b. Explain how intervention by the local government will affect social welfare in this market. You may find the use of a graph helpful.