Micro Economics For Today
Micro Economics For Today
10th Edition
ISBN: 9781337613064
Author: Tucker, Irvin B.
Publisher: Cengage,
bartleby

Concept explainers

Question
Book Icon
Chapter 4, Problem 1SQP

(a):

To determine

The equilibrium demand and supply of milk.

(a):

Expert Solution
Check Mark

Explanation of Solution

The equilibrium demand and supply of milk in the economy can be obtained at the point of intersection of the market demand and supply curves in the economy. The market demand and supply schedules are given, and a graph can be plotted on the basis of the schedule as follows:

Price per gallon

Quantity demanded

(millions of gallons)

Quantity supplied

(millions of gallons)

$10.00100500
8.00200400
6.00300300
4.00400200
2.00500100

Based on this table, it is identified that the quantity supplied increases as price increases and there is a direct and positive relation between the price and quantity supplied. On the other hand, there is a negative relation between the quantity demanded and price because the quantity demanded decreases as price increases. Thus, the quantity demanded will be indicated by a downward sloping curve, whereas the quantity supplied will be indicated by an upward sloping curve as follows:

Micro Economics For Today, Chapter 4, Problem 1SQP

From the diagram, it is observed that the market demand for milk and the supply of milk intersect at Point E. The corresponding quantity at Point E will be the equilibrium quantity of milk, and the corresponding price at Point E will be the equilibrium price of the milk. Thus, at the point of equilibrium E, the equilibrium price is $6 per gallon and the quantity is 300 gallons per month.

Economics Concept Introduction

Equilibrium: Equilibrium in the market is obtained at the point where the market demand is equal to the market supply, and there is no excess demand or supply present in the economy.

(b):

To determine

The effect of support price of $8 per gallon of milk.

(b):

Expert Solution
Check Mark

Explanation of Solution

From the diagram, it is observed that the market demand for milk and the supply of milk intersect at Point E. The corresponding quantity Point E will be the equilibrium quantity of milk and the corresponding price Point E will be the equilibrium price of the milk. Thus, at the point of equilibrium E, the equilibrium price is $6 per gallon and the quantity is 300 gallons per month.

However, when the government enacts the support price of $8 per gallon, the market price will be $8 per gallon. The quantity demanded at this price is 200 gallons per month, whereas the quantity supplied is 400 gallons per month. This means that there will be a surplus of 200 gallons of milk in the economy. The government has to purchase this excess surplus from the market. Since the government revenue is the tax revenue, the non–milk-drinking taxpayers have to pay for the milk indirectly.

(c):

To determine

The effect of ceiling price of $4 per gallon of milk.

(c):

Expert Solution
Check Mark

Explanation of Solution

When the government enacts the ceiling price of $4 per gallon, the market price will be $4 per gallon. The quantity demanded at this price is 400 gallons per month, whereas the quantity supplied is 200 gallons per month. This means that there will be a shortage of 200 gallons of milk in the economy. The government has to ration the milk in order to prevent the black marketing of milk. This is caused due to the action of the government to keep the price of milk below the equilibrium level of $6 per gallon.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
Price Quantity $26 0 The marketing department of $24 20,000 Johnny Rockabilly's record company $22 40,000 has determined that the demand for his $20 60,000 latest CD is given in the table at right. $18 80,000 $16 100,000 $14 120,000 The record company's costs consist of a $240,000 fixed cost of recording the CD, an $8 per CD variable cost of producing and distributing the CD, plus the cost of paying Johnny for his creative talent. The company is considering two plans for paying Johnny. Plan 1: Johnny receives a zero fixed recording fee and a $4 per CD royalty for each CD that is sold. Plan 2: Johnny receives a $400,000 fixed recording fee and zero royalty per CD sold. Under either plan, the record company will choose the price of Johnny's CD so as to maximize its (the record company's) profit. The record company's profit is the revenues minus costs, where the costs include the costs of production, distribution, and the payment made to Johnny. Johnny's payment will be be under plan 2 as…
Which of the following is the best example of perfect price discrimination? A. Universities give entry scholarships to poorer students. B. Students pay lower prices at the local theatre. ○ C. A hotel charges for its rooms according to the number of days left before the check-in date. ○ D. People who collect the mail coupons get discounts at the local food store. ○ E. An airline offers a discount to students.
Consider the figure at the right. The profit of the single-price monopolist OA. is shown by area D+H+I+F+A. B. is shown by area A+I+F. OC. is shown by area D + H. ○ D. is zero. ○ E. cannot be calculated or shown with just the information given in the graph. (C) Price ($) B C D H FIG шо E MC ATC A MR D = AR Quantity
Knowledge Booster
Background pattern image
Economics
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Similar questions
SEE MORE QUESTIONS
Recommended textbooks for you
Text book image
Micro Economics For Today
Economics
ISBN:9781337613064
Author:Tucker, Irvin B.
Publisher:Cengage,
Text book image
Survey Of Economics
Economics
ISBN:9781337111522
Author:Tucker, Irvin B.
Publisher:Cengage,
Text book image
Economics (MindTap Course List)
Economics
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Cengage Learning
Text book image
Macroeconomics
Economics
ISBN:9781337617390
Author:Roger A. Arnold
Publisher:Cengage Learning
Text book image
Microeconomics
Economics
ISBN:9781337617406
Author:Roger A. Arnold
Publisher:Cengage Learning
Text book image
Exploring Economics
Economics
ISBN:9781544336329
Author:Robert L. Sexton
Publisher:SAGE Publications, Inc