Question

Suppose that (cow's) milk and organic fertilizer (i.e., the manure produced by dairy cows) are joint products and independent in consumption. Assume that milk is a normal good and that organic fertilizer (manure) is independent of income (i.e., fertilizer demand does not change when income changes). Suppose that consumer Income Increases. Illustrate and explain the resulting effects on the market equilibrium price and quantity in both the milk market and the organic fertilizer (manure) market. In each market, clearly illustrate and label the new market equilibrium quantity and price. Make sure all text (labels and textboxes) can be easily read. Specifically: a) Illustrate and explain the effects of the increase in consumer income in the milk market. In particular, illustrate the change in demand or supply and the resulting quantity demanded, Q.", and quantity supplied, Q', at the initial market equilibrium price of milk, P., and the shortage or surplus that develops in the milk market at P... Explain the adjustment process to the new market equilibrium price and quantity. Finally, clearly illustrate and label the resulting change in producers surplus. b) Given the changes in the milk market, Illustrate and explain the subsequent effects in the fertilizer (manure) market. In particular, illustrate the change in demand or supply and the resulting quantity demanded, Q', and quantity supplied, Q', at the initial market equilibrium price of fertilizer, P., and the shortage or surplus that develops in the fertilizer market at P, *. Explain the adjustment process to the new market equilibrium price and quantity. Finally, clearly illustrate and label the resulting change in consumers surplus Note: to save time, you are welcome to cut and paste graphical elements (e.g., lines and labels) that you've used for your other Canvas homeworks. Milk Market Organic Fertilizer (Manure) Market

Answer 1

a) -- Increase in consumer Milk Market! demand increases the demand for milk. The initial demand cwere was Do and supply was s. the initial supply was : equilibrium was, with quantity trans acted and price Qo, Po Qo. a ad respectively. . As demand increases due to increase in income of the consumer, the demand curve shift to Do D. At the old price Po i demand was Qd and quantity supplied is still Qo. Then at old price there is excess demanda This excess demand bid the price up. to As price rises quantity demanded fall and quantity supply rises. This decreases excess demand. The price continue to rise until quantity demand equals supply at new equilibrium 2, with equilibrium

quantity and price (Q,,.P.). As the new price P, in greater than Po, the producers swephus rises by the shaded regional In case of organic :6) fertilizers (of) the rise in demand and production of melle increases . production of manure. 21 This increases the supply of. This, at the old price the quantity supplied Qo Qy QS Q rose to GS overe quantity demanded Qo. Then there will be excess suppry. at price Po · This excess supply prompted the producer to decrease the price. The fall in price decreases extess excess supply and new equilibrium reaches at 2 with new quantity and price Q, and :P, . The fall in price increases consumer : sweplus by the shaded area: ... hd. , ,. ..