A sudden decrease in consumer income leads to a decline in the demand for dairy products. In a perfectly competitive dairy market, what would you expect to happen to the equilibrium price and output of milk in the industry?

When consumer income suddenly decreases, people have less money to spend, which often leads to them buying fewer dairy products like milk. In a perfectly competitive dairy market, this decline in demand means that at the original price, there will be more milk available than people want to buy. As a result, suppliers will notice they have excess milk, which can lead them to lower their prices to attract buyers. This drop in price will continue until the market reaches a new equilibrium, where the quantity of milk supplied matches the lower quantity demanded. For example, if before the decrease in income, milk was selling for $3 per gallon and consumers bought 1,000 gallons, the new equilibrium might be a price of $2.