1. EQ # 10 – AGEC 105 – October 21, 2013 (4 points)
Given the following diagram,
(a) What is the market clearing price of milk? (1/2 pt) $2.50
(b) What is the producer surplus? (1/2 pt) (1/2)*1,000*$1.50=$750
(c) What is the total economic surplus? (1/2 pt) $500+$750=$1,250
(d) True or False. With a successful milk advertising campaign (Got Milk?), the market price of milk will rise and the market clearing quantity of milk will fall.
(1/2 pt)
(e) What is the total cost? (1/2 pt) Profits = Producer Surplus = TR – TC
TC = TR – Producer Surplus = ($2.50)(1,000) - $750 = $1,750
$3.50
$2.50
PMilk
1,000
QMilk
$1.00
SMilk
DMilk

2. 2. Given a leftward shift in demand for a product as illustrated below, fill in the blanks regarding questions about producer surplus. Each blank is worth ½ pt. P P1 P2 Q A B I D1 D2 C D G H E F S
Producer Surplus Before __C+D+E_______ After ___E______ Change _-C-D_______

3. Random Question
Who said: “I’m President of the United States, and I’m not going to eat any more broccoli”? George Bush ‘41