Consider the market for wholesale market for milk in 2019 with a perfect elastic supply curve and downward sloping demand curve. The current equilibrium price of milk is $0.55 is per litre and 950 million litres of milk is bought and sold.

a. Draw a diagram showing the wholesale market for milk.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 ofwholesale milk.

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