Question

(I)Consider the market for milk in Saskatchewan. If p is the price of milk (cents per...

(I)Consider the market for milk in Saskatchewan. If p is the price of milk (cents per litre) and Qis the quantity of litres (in millions per month), suppose that the demand and supply curves formilk are given by:

Demand: p = 225 -15QD

Supply: p = 25 + 35QS

a.Assuming there is no government intervention in this market, what is the equilibrium price and quantity?

Equilibrium Price = $165 Quantity = 4Liters

b. Now suppose the government guarantees milk producers a price of $2 per litre and promises to buy any amount of milk that the producers cannot sell. What are the quantity demanded and quantity supplied at this guaranteed price?

Please answer B.

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Answer #1

(a) p = 225 - 15Qd (demand function)

p = 25 + 35Qs (supply fucntion)

At equilibrium, Qd = Qs = Q

225 - 15Qd = 25 + 35Qs

225 - 25 = 35Q + 15Q

200 = 50Q

Q = 220 / 50

Q = 4 million litres (equilibrium quantity)

and, p = 225 - 15Q

p = 225 - 15(4)

p = 225 - 60

p = 165 cents

p = $1.65 (equilibrium price)

(b) If price is $2.

It means, p = 200 cents.

p = 225 - 15Qd (Demand)

200 = 225 - 15Qd

15Qd = 225 - 200

15Qd = 25

Qd = (25 / 15)

Qd = 1.67 million litres. (quantity demanded at the quaranteed price)

p = 25 + 35Qs (supply)

200 = 25 + 35Qs

200 - 25 = 35Qs

35Qs = 175

Qs = 175 / 35

Qs = 5 million litres. (quantity supplied at the guaranteed price)

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