Consider the market for wholesale market for milk in Tasmania 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.

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.

{10 marks} Suppose that in 2020 due to lower feed cost 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.

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

{10' marks} Use the formular : QQ₁= 200% - [( 200%+%QQ)/(%QQ₀)] to show that the quantity of wholesale milk bought and Use the following formula: Q1 = sold in 2020 is 1050 litres.

{5 marks} Illustrate in your diagram and calculate the change in the consumer surplus as result of the lower feed costs for dairy cows.

[15 marks} Explain why the consumer surplus for consumers of Tasmanian milk has changed?