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Explanation & Answer
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ECON
Problem Set: Demand and Supply
Total Points- 20
Instructions: It is not a group work.
1. Let's model the market for Milk. Suppose that the market demand curve for Milk (in billions of 1-gallon C
(a) Graph the supply and demand curves, to scale, at prices from $1 to $6 where Q is on the x-axis and P is on
(b) What are the equilibrium quantity and price in this market?
(c) Suppose the government wants to curb drinking milk and decides to impose a $4/pack minimum price on
(d) Comment on the following statement: "Removal of the Milk price support will result in a decrease in pric
Solution
7
1 a)
Qd
200
160
120
80
40
0
Qs
0
60
120
180
240
300
6
5
4
P
P
1
2
3
4
5
6
3
2
1
0
0
b)
From the supply and demand curve,
Equilibrium quantity
120 gallons
Equilibrium price
$3
c)
120 cans are traded in the market now.
At a $4/pack minimum price,
Demand
80
Supply
180
Surplus
d)
50
100
Removing the milk suport wil...