Question

Suppose that the demand for milk in the United States is represented by the following equation, where P is the price of a gallon of milk. QD = 200 – 10P The supply of milk is represented by the following equation: QS = –10 + 50P The equilibrium price of a gallon of milk is a) $ (give your answer to two decimals), and the equilibrium quantity is b) million gallons.

Answer 1

a.

P = $3.50 per gallon

b.

Equilibrium Quantity = 165 million gallons

Step-by-step explanation:

a.

The equilibrium price is the price at which Quantity demanded equals quantity supplied. To calculate the equilibrium price using the given equations for demand and supply, we need to equate both equations.

Equilibrium Price (P) calculation

QD = QS

200 - 10P = -10 + 50P

200 + 10 = 50P + 10P

210 = 60P

P = 210 / 60

P = $3.50 per gallon

b.

The equilibrium quantity can be calculated by inserting the value of Price (P) in any of the equation for demand or supply.

Equilibrium Quantity = 200 - 10(3.50)

Equilibrium Quantity = 200 - 35

Equilibrium Quantity = 165 million gallons