1. A) Suppose that the demand for milk increases because a new beauty treatment is discovered that uses milk. Analyze the effects of this change on the equilibrium for milk and the equilibrium for cookies by thinking about the diagrams. B) Now to convince yourself that your graphical answer is right, consider the following supply and demand equations for milk and cookies. Qd M = 40 – 2PM – PC Qd C = 40 – 2PC – PM Qs M = PM Qs C = PC i) Solve for the equilibrium prices and quantities. ii) Now suppose that the demand for milk increases so that the demand for milk is given by Qd M= 80 – 2PM – PC. Solve for the new equilibrium prices and quantities of milk and cookies.
1. A) Suppose that the
B) Now to convince yourself that your graphical answer is right, consider the following supply and demand equations for milk and cookies. Qd M = 40 – 2PM – PC Qd C = 40 – 2PC – PM Qs M = PM Qs C = PC
i) Solve for the
ii) Now suppose that the demand for milk increases so that the demand for milk is given by Qd M= 80 – 2PM – PC. Solve for the new equilibrium prices and quantities of milk and cookies.
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