2. Suppose that the market for milk can be represented by the following equations: Demand: P = 12-0.5QD P = 0.1Qs Supply: where P is the price per gallon, and Q represents quantity of milk, represented in millions of gallons of milk consumed per day. a) Calculate the equilibrium price and quantity of milk. b) To help dairy farmers, the government sets a minimum price of $2.50 per gallon of milk. What is the new quantity of milk sold in the marketplace? c) Illustrate your answers to (a) and (b) on a graph. Using this graph, calculate how the consumer surplus and producer surplus change after the price supports are enacted. Also calculate any deadweight loss that results. d) Suppose that the government supports the $2.50 per gallon price by purchasing any excess milk suppliers make available but are unable to sell to consumers. How much milk must the government buy?

2. Suppose that the market for milk can be represented by the following equations: Demand: P = 12-0.5QD P = 0.1Qs Supply: where P is the price per gallon, and Q represents quantity of milk, represented in millions of gallons of milk consumed per day. a) Calculate the equilibrium price and quantity of milk. b) To help dairy farmers, the government sets a minimum price of $2.50 per gallon of milk. What is the new quantity of milk sold in the marketplace? c) Illustrate your answers to (a) and (b) on a graph. Using this graph, calculate how the consumer surplus and producer surplus change after the price supports are enacted. Also calculate any deadweight loss that results. d) Suppose that the government supports the $2.50 per gallon price by purchasing any excess milk suppliers make available but are unable to sell to consumers. How much milk must the government buy?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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