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?

Microeconomics: Principles & Policy
14th Edition
ISBN:9781337794992
Author:William J. Baumol, Alan S. Blinder, John L. Solow
Publisher:William J. Baumol, Alan S. Blinder, John L. Solow
Chapter4: Supply And Demand: An Initial Look
Section: Chapter Questions
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(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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