-The Table Gives the Demand and Supply Schedules for Milk

question 153

Essay

-The table gives the demand and supply schedules for milk in Cowburg. Assume that the only people who benefit from milk are the people who consume it and the only people who bear the cost of milk are the people who produce it.
a) Draw the market demand and market supply curves. What are the equilibrium price and equilibrium quantity of milk? Is this equilibrium efficient? Explain.
b) What is the maximum price that consumers are willing to pay for the 500th gallon? What is the minimum price that producers are willing to accept for the 500th gallon? Explain.
c) Are 500 gallons a day less than or greater than the efficient quantity? Explain your answer.
d) If the market for milk is efficient, what is the consumer surplus? Show it on your graph. What is the producer surplus? Show it on your graph.
e) If farmers produce 500 gallons a day, is there a deadweight loss? If yes, what is it? Explain your answer using your graph.

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