Problem 6. Suppose in some country, the market of cheese is characterized by the following relations:...

 

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Problem 6. Suppose in some country, the market of cheese is characterized by the following relations: Q = 150 - 10P and Q. = 30 +2P 2 a) Which one is the demand (supply)? Justify your answer. b) Calculate the equilibrium. c) We know that for each cheese 10 liters of milk is needed. Suppose in that country milk is only used for producing cheese. Calculate the cross elasticity price of the demand of milk with respect to the price of cheese at the equilibrium point. d) Suppose now there is an improvement in the recipe for cheese that makes the demand to duplicate (for each price). Calculate the new equilibrium and compare with the previous one. e) Now the government wants to set a maximum price of P = 11 because he thinks that the increase in price was too much. Study what will happen under this scenario. Problem 6. Suppose in some country, the market of cheese is characterized by the following relations: Q = 150 - 10P and Q. = 30 +2P 2 a) Which one is the demand (supply)? Justify your answer. b) Calculate the equilibrium. c) We know that for each cheese 10 liters of milk is needed. Suppose in that country milk is only used for producing cheese. Calculate the cross elasticity price of the demand of milk with respect to the price of cheese at the equilibrium point. d) Suppose now there is an improvement in the recipe for cheese that makes the demand to duplicate (for each price). Calculate the new equilibrium and compare with the previous one. e) Now the government wants to set a maximum price of P = 11 because he thinks that the increase in price was too much. Study what will happen under this scenario.

Answer rating: 100% (QA)

a To determine which relation represents demand and which represents supply we can compare their slopes The demand curve usually has a negative slope ... View the full answer