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Perfect elastic supply curve-downward sloping demand curve

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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 brought and sold.

Suppose that in 2020 due to lower feed costs for dairy cows, the price drops to $0.45 per litre.

(a) Illustrate in your diagram and calculate the change in the consumer surplus as result of the lower feed costs for dairy cows.

Reference no: EM132489423

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