Suppose Milk and Cereal Are Compliments and the Demand for Milk

question 23

Multiple Choice

Suppose milk and cereal are compliments and the demand for milk is Q^d_m = 40 - 6P_m - 2P_c,where Q^d_m stands for millions of gallons of milk demanded,P_m stands for the price of milk and P_c stands for the price of cereal.The supply of milk is Q^s_m = 6P_m - 8,where Q^s_m stands for millions of gallons of milk supplied.The demand and supply of cereal are Q^d_c = 90 - 5P_c - P_m and Q^s_c = 5P_c - 10,respectively,where Q^d_c stands for millions of boxes of cereal demanded and Q^s_c stands for millions of boxes of cereal supplied.Suppose the government imposes a $2.00 per gallon tax on milk.In the new general equilibrium:

• A) the price of milk and the price of cereal are both higher.
• B) the price of milk is higher and the price of cereal is lower.
• C) the price of milk is lower and the price of cereal is higher.
• D) the price of milk and the price of cereal are both lower.