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Economics

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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 2. Graphically represent the market for Cherry in Michigan under each of the following conditions (taken on (a) The State mandates that fresh fruit be served in all school lunches. (b) Cherry harvesters in the state receive a large wage increase. (c) The U.S. Agriculture Department imposes a minimum price on Cherries (called a price support). (d) The U.S. Agriculture Department imposes a minimum price on Oranges, which is higher than the current 3. Consider the market for fresh cut flowers. On a normal day, the demand for fresh cut flowers is expressed a) What is the equilibrium price and quantity on a normal day? b) On Mother's Day, demand for fresh cut flowers changes to QD=37.5-¾P. What is the new equilibrium pric c) Mothers day is in May and suppose that producing fresh cut flowers in the winter costs more than produci d) Candle is also a popular Mothers Day gift. What do you think will happen to the price of Candle around M
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Explanation & Answer

Attached.

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...


Anonymous
I was having a hard time with this subject, and this was a great help.

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