Question

The market for milk is initially in equilibrium. Milk producers successfully advertise to encourage milk drinking. At the same time, more milk producers enter the market. Standard demand and supply analysis tells us that the: Select one: 0 a. equilibrium price of milk will rise, but we can't determine how the equilibrium quantity will be affected. b. equilibrium price and quantity of milk will rise. O O c. equilibrium quantity of milk will rise, but we can't determine how the equilibrium price will be affected. O d. equilibrium price and quantity of milk will fall.

Answer 1

Ey 77777 TA a 00, Q3 Q, Qy Quantity In the diagram above, we see that intial equilibrium in market for milk is at E with puce p and quantity, o. Due to increase in advertisings, the demand for milk has been successfully encouraged. Thus, demand will rise and demand curre will shift night. Also, due supples aurre to the of milk will increase in producers, the will increase. Thus, supply also shift right

But, the effect on the equilibrium price and quantity will depend upon the relative size of the increase in demand and supply.

If both demand and supply increase by equal amount, the equilibrium price will not change, as shown by point E4 in the diagram above.

But price would fall in cases like E1 and E2, when supply increases more than demand.

Price would rise when demand increases more than supply, like the point E3 in the diagram above.

But we can see from the figure that in all the cases the equilibrium quantity will increase for sure.

Thus, the correct option for the question is C. The equilibrium quantity will rise but we cannot say about the price until more information is available.

**Please rate the answer if found helpful.