Question
Harrison owns a dairy farm in Western Victoria. There are about 1,500 dairy farms in the same region. All dairy farms here, Harrison's included, sell
Harrison owns a dairy farm in Western Victoria. There are about 1,500 dairy farms in the same region. All dairy farms here, Harrison's included, sell milk at the price of 50 cents per litre. The buyers are Woolworths and Coles, the two biggest supermarket chains in Australia. Last month, Harrison decided to raise his price to 55 cents per litre while his competitors kept the price unchanged. After raising his price, Harrison noticed that his buyers stopped doing business with him. Consequently, Harrison's sales last month crashed to zero.
Question 1a. What can you say about the price elasticity of demand for Harrison's milk? Clearly explain. Note: This question does not focus on the price elasticity of demand for milk overall. It concentrates on the price elasticity of demand for milk supplied by Harrison in particular. (0.5 marks)
Question 1b. How would you illustrate the demand curve for Harrison's milk on a graph? Excel graphs, no hand-drawn graphs permitted.(0.5 marks)
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