The inverse demand and supply functions for ideal milk in


The inverse demand and supply functions for ideal milk in Legon are:

P = 100 - Q

Q = 1/3 P - 20/3

where P is the price of a tin of ideal milk.

What price will generate a price elasticity of demand of 4 for ideal milk?

Sketch the demand and supply functions. Combine all curves on one graph.

Compute the market-clearing price and quantity for ideal milk.

Compute the consumers' surplus and total surplus in this market.

Suppose the cost of milking a cow rises such that at every quantity, cost rises by GH¢20. How will that affect the equilibrium price and quantity for ideal milk?

If the Member of Parliament for Legon constituency argues that the free-market price for ideal milk is too high for the ordinary person to pay. What's the effect of a price ceiling at GH¢74?

Another MP from Tamale contends that the equilibrium price is rather too low for ideal milk producers to earn a fair return. If his contention is accepted, what will be the effect of a price floor of GH¢86?

What would be the cost to the government of the price floor in (g)?

Compute the price elasticity of supply at the initial equilibrium.

Is supply elastic or inelastic?

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