10.) The U.S. Department of Agriculture guarantees dairy producers that they wil

Question

10.) The U.S. Department of Agriculture guarantees dairy producers that they will receive at least $1.00 per pound for butter they supply to the market. Below is the current monthly demand and supply schedules for wholesale butter (in millions of pounds per month).

Market for Wholesale Butter

Instructions: Round your answer for price to two decimal places. Enter your answers for quantity as a whole number.

a. What are the equilibrium price and quantity in the wholesale butter market?

     P = $ ___

     Q = ___million pounds

b. What is the monthly surplus created in the wholesale butter market due to the price support (price floor) program?

a.) Zero

b.) 79 million pounds

c.) 22 million pounds

d.) 11 million pounds

Suppose that a decrease in the cost of feeding cows shifts the supply schedule to the right by 40 million pounds at every price.

c. Fill in the new supply schedule given the change in the cost of feeding cows.

Market for Wholesale Butter

d. Given the new supply of butter, what is the monthly surplus of butter created by the price support program?

___ million pounds

Price (dollars per pound) Quantity of Butter Demanded (millions of pounds) Quantity of Butter Supplied (millions of pounds) $0.80 110 66 0.90 107 74 1.00 104 82 1.10 101 90 1.20 98 98 1.30 95 106 1.40 92 114 1.50 89 122 1.60 86 130 1.70 83 138 1.80 80 146

Explanation / Answer

a) the equilibrium price and quantity in the wholesale butter market

     P = $ 1.20

     Q = 98 million pounds

it is so because the quantity demanded = quantity supplied = 98 at price 1.20

so equilibrium quantity will be 98 and equilibrium price will be $1.20

b) The monthly surplus created in the wholesale butter market due to the price support (price floor) program is Zero

ans is a) Zero.

It is so because price in the market is already above $1 i.e, $1.20 > $1 so mothly surplus is zero.

c) Add 40 to the initial supplyto get new supply.

d) Here at price $1 demand is 104 while the new supply at this price is 122, so the govt will provide $1 fo this excess supply.

the monthly surplus of butter created by the price support program is

122 - 104 = 18*$1 = $18million pounds.

Price (dollars per pound) quantity demanded Initially quantity of butter supplied New quantity of butter supplied $0.80 110 66 66 + 40 = 106 0.90 107 74 74 +40 = 114 1.00 104 82 122 1.10 101 90 130 1.20 98 98 138 1.30 95 106 146 1.40 92 114 154 1.50 89 122 162 1.60 86 130 170 1.70 83 138 178 1.80 80 146 186

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