Price Controls 6. Consider the following supply and demand equations for the market for milk in the US. Q₁ = 10P-2 Qa=28-5P a. Use the equations above to solve for equilibrium price and quantity (SHOW YOUR WORK!). Sketch and completely label a corresponding graph of your solution. b. Suppose the government imposes a binding price control on the market for milk, setting the price to $3. Is this a price floor or price ceiling? Use P₁ = $3 and the equations above to calculate the quantity supplied (Q.) and quantity demanded (Qa). Show and label the price support of $3 and new quantities on the graph above. c. Given your answers in part (b), will the price control of P₁ = $3 create a shortage or surplus of milk? Calculate the shortage or surplus. d. If this price control is eventually removed, will the market price of milk rise or fall back to equilibrium market price?
Price Controls 6. Consider the following supply and demand equations for the market for milk in the US. Q₁ = 10P-2 Qa=28-5P a. Use the equations above to solve for equilibrium price and quantity (SHOW YOUR WORK!). Sketch and completely label a corresponding graph of your solution. b. Suppose the government imposes a binding price control on the market for milk, setting the price to $3. Is this a price floor or price ceiling? Use P₁ = $3 and the equations above to calculate the quantity supplied (Q.) and quantity demanded (Qa). Show and label the price support of $3 and new quantities on the graph above. c. Given your answers in part (b), will the price control of P₁ = $3 create a shortage or surplus of milk? Calculate the shortage or surplus. d. If this price control is eventually removed, will the market price of milk rise or fall back to equilibrium market price?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Transcribed Image Text:Price Controls
6. Consider the following supply and demand equations for the market for milk in the US.
Q₁ = 10P-2
Qa=28-5P
a. Use the equations above to solve for equilibrium price and quantity (SHOW YOUR WORK!).
Sketch and completely label a corresponding graph of your solution.
b. Suppose the government imposes a binding price control on the market for milk, setting the price
to $3. Is this a price floor or price ceiling? Use P₁ = $3 and the equations above to calculate the
quantity supplied (Q.) and quantity demanded (Qa). Show and label the price support of $3 and
new quantities on the graph above.
c. Given your answers in part (b), will the price control of P₁ = $3 create a shortage or surplus of
milk? Calculate the shortage or surplus.
d. If this price control is eventually removed, will the market price of milk rise or fall back to
equilibrium market price?
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