Consider the market for butter in Kimberley/Tshwane. The demand curve is given by Qd = 300 2 P +4 I, where I is the average income. The supply curve isQs =3P 25 PM 25,where PM is the price of milk.

(a) If the average income in Kimberley is I = 25 and the price of milk is PM = 1, what is the market clearing price and quantity in Kimberley?(b) Suppose that bad weather conditions raise the price of milk to PM = 2. Find the new equilibrium price and quantity of butter in Kimberley. (Draw a graph to illustrate your answer).(c) If the average income in Tshwane is I = 50, what is the market clearing price and quantity in Tshwane when PM = 1? Compare your results with the ones you have obtained in (a).

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