Quantity of Butter Figure 2.2.a An increase in the price ofmilk. Milk is the main ingredient in butter.An increase in the price of milk will increase the cost of producing butter.The supply curve for butter will shift from S to S2 in Figure 2.2.b.resulting in a higher equilibrium price.P. covering the higher production costs,and a lower equilibrium quantity,Q. Price S QQuantity of Butter Figure 2.2.b Note:Given that butter is in fact made from the fat that is skimmed off of the milk.butter and milk are ioint products.If you are aware of this d As the quantity supplied of milk inereases,there is a larger supply of fat available to make butter This will shift the supply of butter curve to the right and the price of butter will fall.D1 D2 P1 P2 S Price Q Quantity of Butter 1 Q2 Figure 2.2.a b. An increase in the price of milk. Milk is the main ingredient in butter. An increase in the price of milk will increase the cost of producing butter. The supply curve for butter will shift from S1 to S2 in Figure 2.2.b, resulting in a higher equilibrium price, P2 , covering the higher production costs, and a lower equilibrium quantity, Q2 . D P1 P2 S2 Price Q Quantity of Butter Q2 1 S1 Figure 2.2.b Note: Given that butter is in fact made from the fat that is skimmed off of the milk, butter and milk are joint products. If you are aware of this relationship, then your answer will change. In this case, as the price of milk increases, so does the quantity supplied. As the quantity supplied of milk increases, there is a larger supply of fat available to make butter. This will shift the supply of butter curve to the right and the price of butter will fall