Question

4. Let’s say you work as a junior researcher in a consulting company that has been hired by the American milk suppliers association to conduct a study on the milk market. Your assignment is to predict, using the demand and supply analyses, what will happen to the price and quantity (in gallons) traded (bought and sold) under the conditions stated below. What are your predictions? Explain fully using appropriate graphs (sketch). Consider each part separately.     (12 pts)

Note: If you are unable to draw graphs electronically, you can draw them manually and submit a scanned version of your drawings.

          a. The price of comparable imported milk decreases.

   b. Consumer income in the US increases (milk is a normal good).

  c. Drought in the Great Plains reduces the supply of corn.

d. Milk producers now engage in a costly advertising program to encourage milk drinking. Assume that the advertising campaign succeeds in shifting consumer tastes toward drinking milk and that more milk producers enter the market.

e. Farmers that produce milk can choose to produce eggs and price of eggs increases substantially.

f. Improved cattle feed increases milk production. At the same time, new medical reports indicate that drinking milk reduces the risk of bone cancer.

Answer 1