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EQ # 10 – AGEC 105 – October 21, 2013 (4 points)
1.
Given the following diagram,
PMilk
$3.50
SMilk
$2.50
DMilk
$1.00
1,000
QMilk
(a) What is the market clearing price of milk? (1/2 pt) $2.50
(b) What is the producer surplus? (1/2 pt) (1/2)*1,000*$1.50=$750
(c) What is the total economic surplus? (1/2 pt) $500+$750=$1,250
(d) True or False. With a successful milk advertising campaign (Got Milk?), the
market price of milk will rise and the market clearing quantity of milk will fall.
(1/2 pt)
(e) What is the total cost? (1/2 pt) Profits = Producer Surplus = TR – TC
TC = TR – Producer Surplus = ($2.50)(1,000) - $750 = $1,750
2. Given a leftward shift in demand for a product as
illustrated below, fill in the blanks regarding questions
about producer surplus. Each blank is worth ½ pt.
P
S
P1
P2
I
B
A
C
D
H
G
E
D1
F
D2
Q
Producer Surplus
Before
__C+D+E_______
After ___E______
Change _-C-D_______
Random Question
Who said: “I’m President of the United States, and I’m not
going to eat any more broccoli”?
George Bush ‘41