The demand for milk and supply of milk in the U.S: QD = 152 – 20 P , Qs = - 4 + 188 P
Q: measured in billions of gallons per year P is measured in dollars per gallons.
1) Calculate the competitive market equilibrium price and quantity and total surplus at that price. Illustrate your answer.
2) If price floor Pf = $1.25, how much do the government pay to buy the excess supply?
1) Let's calculate the competitive market equilibrium price and quantity:
Let's first find the consumer surplus. By the definition of the consumer surplus, we have:
Let's find the maximum price the consumer is willing to pay:
Then, we get:
Let's find the producer surplus. By the definition of the producer surplus, we have:
Let's find the the minimum price at which the seller is willing or able to sell:
Then, we get:
Finally, we can find the total surplus:
2) Let's first find the quantity of milk demanded at the price of $1.25:
Then, we can find the quantity of milk supplied at the price of $1.25:
Finally, we can find the excess quantity that the government must buy:
The government must pay:
Comments
Leave a comment