Consider the market for wholesale market for milk in Tasmania in 2019 with a perfect elastic...

a. Draw a diagram showing the wholesale market for milk in Tasmania. Include a title and label the demand curve, supply curve, equilibrium price and quantity.

b. Suppose that in 2020 due to lower feed costs for dairy cows, the price drops to $0.45 per litre. Illustrate the change in equilibrium price and quantity and any changes in the demand or supply of wholesale milk in Tasmania.

c. Calculate the change in the price using the cross/mid-point formula. Use the demand elasticity for wholesale milk of ε = - 0.5 to estimate the % change in quantity demanded for wholesale milk in 2020.

d. Use the following formula: ?1 200%+%∆?/ 200%−%∆? ?0 to show that the quantity of wholesale milk bought and sold in 2020 is 1050 litres.

e. Illustrate in your diagram and calculate the change in the consumer surplus as result of the lower feed costs for dairy cows. f. Explain why the consumer surplus for consumers of Tasmanian milk has changed?

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Expert Solution

Rahul Sunny answered 1 year ago

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