The inverse demand and supply functions for Peak Milk in Accra are as follows:
P = 100 – Q and Q = 1/3P – 20/3
where P is the price of a tin of Peak milk.
Requirement:
a.Sketch the demand and supply functions on one graph.
b.Compute the market-clearing price and quantity for peak milk.
c.Compute the consumers’ surplus and total surplus in this market.
d.Suppose the cost of milking a cow rises such that at every quantity, cost rises by GH¢20.00. How will that affect the equilibrium price and quantity for peak milk?
e.If the Regional Minister of Great Accra argues that the free-market price for peak milk is too high for the ordinary person to pay. What’s the effect of a price ceiling at GH¢74.00
f.Another Regional Minister contends that the equilibrium price is rather too low for peak milk producers to earn a fair return. If his contention is accepted, what will be the effect of a price floor of GH¢86.00.
g.What will be the cost to the government of the price floor in (f) above?