a) Export subsidy will help to increase the supply of beef in Canadian market due to this lower price. This will further reduce the domestic supply of this product in Australian market. However, the amount of domestic demand will remain same. Hence, this export subsidy will increase domestic price of beef in Australia (Matusz and Tarr 2017). The quantity of beef produced will be increased due to its increasing supply in Canada. Overall beef demand will be increased. Moreover, the quantity of beef exported will be increased.
b) Beef price for Australian consumers will be increased due to excessive demand for beef. Beef producers will decrease their supply of product in domestic market and will increase the amount of supply in Canadian market (Feenstra 2015). Hence, the amount of negative consumer surplus (CS) will be (A+B).
On the other side, producers will earn more revenue by exporting more beef in Canadian market. They can earn more profits. Hence, producer surplus (PS) will be (A+B+F) amount.
Total surplus of Australia will be (CS+PS) = F. Moreover, government revenue of Australia will be decreased by (PFT – PA) amount.
c) After imposition of import quota, Canadian economy will face some changes regarding welfare of the economy. This can be calculated by above figure. Here, consumer price of beef in Canadian market will be increased by (PC- PFT) amount. Hence, consumer of Canada will face a negative surplus ((Matusz and Tarr 2017). Here the amount of negative consumer surplus (CS) will be (A+B+C+D). On the other hand, producers will earn more revenue as domestic demand for beef will be increased. Here, producer surplus (PS) will be A. But, benefit of beef importers will be decreased. They will not import more beef with higher prices. Moreover, the dead-weight loss will be (B+C+D+F+G+H).
The government of a country can increase its business diversification by implementing various trade protection policies. Due to free trade, a country can tend to be specialised for a particular product (Schuknecht 2017). Hence, it will lose its self-sufficiency. However, after imposition of trade protection policy, this country cannot import those goods in which they do not have specialisation. Hence, they will produce those goods in their domestic market. As a result, the country can be self-sufficient by increasing business diversification.
The balance of trade (B.O.T) for a country can be negative due to excessive imports. Due to specialisation, B.O.T of this country will be negative (Schuknecht 2017). However, after imposition of trade protection policy, the country will produce almost all necessary goods in their domestic market. This will further help this country to enhance surplus in their B.O.T.
Answer2:
|
Quantity (Q) |
Marginal Cost (MC) |
|
1 |
20 |
|
2 |
30 |
|
3 |
50 |
|
4 |
80 |
Table1: Production and marginal cost of a competitive industry
a) Under perfect competitive market, marginal cost (MC) and price for one unit of output will always remain equal (Veiga and Weyl 2016). Hence, MC=P. Here at Q=2, the industry wants to charge 30 unit of price. However, the market price for this unit of output is 40. Hence, producer surplus is (40-30) = 10 unit. This can be calculated from the above table.
b) In table 1, the producer wants to charge 50 unit of price, when Q=3. However, the market price is 60. Hence, the amount of producer surplus is (60-50) =10.
a) Inverse demand curve: Inverse demand curve shows an opposite relation between price and quantity demanded (Galik and McAdams 2017). Here, independent variable is price and dependent variable is quantity demanded. This means, by changing the amount of quantity demanded, price level will be determined.
Here, the equation of inverse demand function for this orange factory is:
P = 100 – QD/2
Inverse Supply curve: Inverse supply function represents an opposite relation between price and quantity supplied (Galik and McAdams 2017). In this inverse equation, dependent variable is price and independent variable is quantity supplied of orange.
Hence, the inverse supply function of orange will be:
P = QS + 10
b) The following diagrams represent an inverse demand and an inverse supply curve of an orange market.
After representing inverse demand and supply curve, the market equilibrium condition of this orange market is shown. Moreover, consumer surplus and producer surplus are also shown in this same diagram.
c) Under perfectly competitive orange market, the given demand function is:
Moreover, the given supply functions of this orange market is:
QS = -10 + P
Equilibrium condition for a competitive market is:
QD=QS
That is,
200 -2P= -10 + P
Therefore, equilibrium price level is $70.
From supply equitation, the equilibrium quantity of orange will be analysed.
QS = -10 + 70
QS = 60.
Hence, the equilibrium amount of orange market is 60.
d) Applying the area formula of a right-angled triangle, consumer surplus and producer surplus will be determined (Hortaçsu Madanizadeh and Puller 2017). The area formula is: 1/2 * height* base. Here, the highest amount of price that a consumer can pay for one unit of orange will be determined. Hence, this maximum amount of price is:
2P= 200-0
P=100
Moreover, at $ 70, the equilibrium amount of orange is 60.
Here, consumer surplus is: 1/2 * (100-70)*60 = 30*60= 1800.
On the other side, a producer wants to supply its minimum orange ate price level $10.
P= 0+10
P=10
Producer surplus is: 1/2 * (70-10)*60 = 60*60= 3600
a) As an economist, this outcome is not surprising. Due to increase in price level, consumers of Alcopops will be unable to buy binge drinking and alcohol-related products. However, being addicted, teenagers will try to consume those products. Hence, a black market will be generated. This will reduce the government revenue (Martino et al. 2017). The government cannot track huge amount of Alcopops for this black market. As a result, the amount of revenue produced from this tax will be less than predicted.
In the above diagram, the demand curve of Alcopops is drawn. Being an inelastic product, the demand curve will be steeper. According to the government, after imposition of tax, the price level will be P1. However, the actual price level was less than P1 due to this black market practice.
b) Being addicted, teenagers will not reduce its level of consumption after imposition of tax. As Alcopops is an inelastic product, the burden of tax will ultimately be borne by the consumers (Belleflamme and Toulemonde 2017).
After analysing this outcome, it can be said that the tax is not efficient. People will not reduce its consumption level. Hence, tax could not control total consumption of Alcopops. Moreover, due to this tax, a black market for Alcopops is generated.
c) To reduce the amount of Alcopops consumption and hospitalisation, both central and state level governments can implement various social and legal policies to control this situation (Martino et al. 2017). The government can organise various campaigns in different schools and colleges to inform about the bad impacts of consuming Alcopops. Moreover, some legal actions can also be implemented for controlling binge drinking and alcohol-related consumptions. The government can set a minimum age level to consume those products.
References:
Belleflamme, P. and Toulemonde, E., 2017. Tax incidence on competing two?sided platforms. Journal of Public Economic Theory.
Feenstra, R.C., 2015. Advanced international trade: theory and evidence. Princeton university press.
Galik, C.S. and McAdams, D., 2017. Supply, demand, and uncertainty: implications for prelisting conservation policy. Ecological Economics, 137, pp.91-98.
Hortaçsu, A., Madanizadeh, S.A. and Puller, S.L., 2017. Power to choose? An analysis of consumer inertia in the residential electricity market. American Economic Journal: Economic Policy, 9(4), pp.192-226.
Martino, F.P., Miller, P.G., Coomber, K., Hancock, L. and Kypri, K., 2017. Analysis of alcohol industry submissions against marketing regulation. PLoS one, 12(1), p.e0170366.
Matusz, S.J. and Tarr, D.G., 2017. Adjusting to trade policy reform. In Trade Policies for Development and Transition (pp. 77-114).
Schuknecht, L., 2017. Trade protection in the European Community (Vol. 29). Routledge.
Veiga, A. and Weyl, E.G., 2016. Product design in selection markets. The Quarterly Journal of Economics, 131(2), pp.1007-1056.a
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