Question

Assume that a decline in consumer income shifts the demand curve for milk to the left, reducing the equilibrium price of milk from $2.05/gallon to $1.82/gallon. Further, assume that the equilibrium quantity of milk before the income decline was 2,505.4 gallons, the elasticity of milk supply is 0.555, and the elasticity of milk demand is -1.226. What will be the new quantity supplied of milk

Answer 1

the new quantity supplied of milk is 2349.4 million gallons

Step-by-step explanation:

The computation of the new quantity supplied of milk is shown below:

As we know that

Price elasticity of supply = Percentage change in quantity ÷ Percentage change in price

0.555 = ((x - 2505.4) ÷ 2505.4) ÷ ((1.82 - 2.05) ÷ 2.05)

x = 2349.4 million gallons

Hence, the new quantity supplied of milk is 2349.4 million gallons