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
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
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
Price (dollars per pound) Quantity of Butter Demanded (millions of pounds) Initial Quantity of Butter Supplied (millions of pounds) New 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
d. Given the new supply of butter, what is the monthly surplus of butter created by the price support program?___ million pounds