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ASSESSMENT 2: APPLIED WRITING Weighting 25% Word limit 1000 words in total (including diagrams, references and all text) Total marks 25 Due Date Sunday 6th April XXXXXXXXXXpm Topics Assessed Demand...

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ASSESSMENT 2: APPLIED WRITING
    Weighting
    25%
    Word limit
    1000 words in total (including diagrams, references and all text)
    Total marks
    25
    Due Date
    Sunday 6th April XXXXXXXXXXpm
    
    
    
    
    
    
    Topics Assessed
    Demand and Supply, Elasticities , Efficiency and The incidence of Tax
    Reference1
    UniSA Harvard Style
AIMS
The purpose of this task is to demonstrate your understanding of the economic concepts and models you have learned in the course in topics 2 Demand and Supply, 3 Elasticity’s and 4 Efficiency and The incidence of Tax. by relating them to a real world situation.
COURSE OBJECTIVES
These course objectives are covered by the assignment.
CO1. Describe and utilise the fundamental tools, methods and language of economics to analyse resource allocation issues
CO3. Describe the impact of incentives and use economic models to illustrate how agents and economies respond to incentives
CO4. Identify the limitations of the market mechanism and analyse the role of government in affecting markets and decision-making in the general economy
TASK DESCRIPTION
Read the article written by Oscar Williams-Grut “The butter market is going crazy” published in Business Insider Australia on 31 October 2017. Answer the three questions that follow the article using economic models where appropriate. Answer each question separately and include an introduction and conclusion to the whole assignment. Specify any assumptions you have made and use clear, concise and coherent arguments. Wherever you use ideas from sources to support your arguments make sure you cite them according to UniSA Harvard conventions.
1 Failure to cite properly is evidence of academic misconduct, and will result in marks being deducted.
FRAMEWORK FOR EACH ANSWER
1. Identify the key issue in the questions provided.
2. Analyse these key issues in the news article, within the context of the concepts discussed in the lectures and textbook.
3. Use the appropriate economic model to illustrate the key issues graphically. Fully label the model and clearly indicate where changes occur.
4. Explain the model and discuss the outcome.
5. Provide the list of references used in answering the questions.
NEWS ARTICLE
The butter market is going crazy
Business Insider Australia
By: Oscar Williams-Grut Date: 31st October, 2017
https:
www.businessinsider.com.au
utter-shortage-why-prices-are-rising-and-supply-is-falling XXXXXXXXXX?r=UK&IR=T
LONDON — The price of butter is exploding in Europe, with a shortage hitting France, one of the continent’s biggest consumers.
The price of 100kg of butter has jumped from just over €400 at the start of the year to close to €600, according to the EU’s Milk Market Observatory. Prices are rising amid a shortage of supply across the world.
Rapidly rising butter prices in Britain are contributing to supermarket inflation of 3.2%, according to recent Kantar Worldpanel data, and France is facing a shortage of butter.
What’s causing the butter crisis?
Butter prices are rising mainly due to a squeeze on supply according to the BBC. New Zealand butter exports are down and a poor harvest in Europe last year had meant less animal feed for cows.
The BBC said that rising demand for European-style pastries in China is also increasing demand for butter at a time when supply is falling.
The shortage has hit France particularly hard because supermarkets have been reluctant to raise their prices to respond to the squeeze on supply.
With supermarkets not paying more, producers are selling their butter a
oad instead.
Thie
y Roquefeuil, chairman of the milk-producers’ federation FNPL, told Bloomberg: “French retailers refuse to increase prices, even by few cents, even for butter. Dairy producers see that there’s an outside demand at higher prices so they sell a
oad, and rightfully so.”
QUESTIONS
Q1. Using the demand and supply model, explain and illustrate why butter prices are rising in Europe.
Hint: Make sure you discuss the equili
ating process, and clearly outline the assumptions in discussing the factors causing an increase in price.
Q2 (a). Use the determinants of price elasticity of demand to analyse whether the demand for butter by the baking industry is likely to be price elastic or inelastic.
Q2 (b). If the market demand for baked goods is price inelastic explain what will happen to the total revenue of the bakeries stemming from the butter shortage. Specify any assumptions you make.
Q3. Assume that demand for European-style pastries in China is elastic and the government has imposed a tax on baked goods. Explain who will bear most of the burden of tax on baked goods. Illustrate your conclusion using an appropriate economic model.
Hint: In your answer, make reference to the concepts of consumer and producer surplus.
Your assignment will also be assessed on how effectively you can communicate with the reader, i.e. how well you have presented your arguments and ensured your analysis is logical and consistent. In addition, 3 marks will be awarded to writing including introduction, conclusion, and grammar, referencing and formatting. Importantly, make sure you use appropriate diagrams in your analysis.
Answered Same Day Apr 01, 2020

Solution

Deepika answered on Apr 04 2020
148 Votes
Introduction
The continuously rising price of butter has become a cause of wo
y for the European markets. As butter is the basic good used for consumption as well as it is the main ingredient for the bakery industry, it has implications for the demand and supply of butter and butter products. The demand for butter is almost inelastic therefore shortage in supply has raised its price. The government could intervene in the market for butter by imposing taxes, but the burden of taxes is in turn is dependent upon the demand and supply elasticity.
Answer 1. The forces of demand and supply interact in the market to determine the market equili
ium. At market equili
ium, demand is equal to supply at the given price. Any factor which affects the demand or the supply will cause the relevant curve to shift and will result into disequili
ium. When the equili
ium is again established it causes the price and quantity to change. In Figure 1, a decrease in supply shifts the supply curve leftwards from S to S’. The supply of a commodity is affected by price, technology, cost of production, factor prices, prices of related goods, government policy etc. The initial equili
ium is at E where demand is equal to supply. As supply curve shifts upwards and leftwards, there occurs disequili
ium. A supply curve shifts whenever any factor except price changes. Again, the equili
ium is established where new supply curve S’ meets the demand curve D at point F. At F, we can see that price has increased from its initial level and quantity supplied has decreased.
Figure 1 Shift in Supply Curve
This is what is happening in the butter market in Europe. The butter prices are rising in Europe because there is shortage in supply of butter across the world. The supply shortage is in turn due to the following factors:
1. Much of the European demand for butter is met through imports from New Zealand and there is a decline in export of butter from New Zealand. (Supply shock)
2. Butter is made out of cow milk. The quality and quantity of cow milk depends on the amount of feed cow gets. As there was a poor harvest in Europe last year, there was less animal feed which means lesser quantity of milk that we get from cow. Lesser quality milk implies lesser will be available for making...
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