(a) Using graphical analysis demonstrate and explain how Government intervention brought
about the so called "butter mountains" and "lake
wines" in EU around 1970? (10 marks)
(b) Explain what the government of EU did to support its price policy of maintaini

Answer :

Final answer:

Government intervention in the EU created surpluses like 'butter mountains' and 'wine lakes' by keeping prices above equilibrium levels.


Explanation:

Government intervention in the EU around 1970 led to the creation of 'butter mountains' and 'wine lakes.' This was illustrated through a scenario where prices were kept above equilibrium levels, causing surpluses. For example, in the market for wheat in Europe, policies aimed at keeping prices high resulted in a quantity supplied exceeding the quantity demanded.


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