Great Deal! Get Instant $10 FREE in Account on First Order + 10% Cashback on Every Order Order Now

Format: XXXXXXXXXXwords (for the whole assignment excluding questions and reference list) Marks: 40% of overall assessment Question 1 (10 marks) -Short Answer Question (references not needed) Most...

1 answer below »


Format: XXXXXXXXXXwords (for the whole assignment excluding questions and reference list)

Marks:40% of overall assessment

Question 1 (10 marks) -Short Answer Question (references not needed)

Most cities and towns in Australia and many other places around the world are facing severe water shortages. One demand management approach that has been popular among policy makers over the years is pricing the water. Using the price mechanism can help ensure that the water is allocated to its best uses and the price of water reflects its full cost.

The table below sets out hypothetical data on total demand and supply of water for residential consumption in a typical city:

Price ($ per 1000 litres)

Quantity demanded (Million litres per day)

Quantity supplied (Million litres per day)

0.50

24.00

22.00

0.55

23.50

22.25

0.60

23.25

22.50

0.65

23.00

22.70

0.70

22.00

23.00

0.75

18.50

23.50

0.80

17.00

24.50

Based on the above data, answer the following questions:

(a) If the residential demand for water increases, but the water supply authority in the city is capable of supplying only 22.50 million litres of water per day, describe the situation in the market for water. (2 marks)

(b) What are the key influences on the elasticity of demand for residential water use that you think make its demand elastic at certain price ranges? (3 marks)

(c) If the government imposed a $0.05 per 1000 litres ‘excise tax’ on producers for their water supplies over all price ranges, explain, with the help of a graph, how you would expect this to affect the water market and tax incidence. (5 marks)

Question 2 (10 marks)-Short Answer Question (references not needed)

(a) Complete the following table of costsforthe Pizza Company. (4 marks)

(b) Draw the total cost curve on one graph. On another graph, draw the marginal cost, average total cost and average variable cost curves. (4 marks)

(c) Are there output levels that exhibit increasing returns to scale? (1 mark)

(d) Are there output levels that display decreasing returns to scale? (1 mark)

Pizzas

Fixed costs

Variable costs

Total costs

Marginal costs

Average total costs

Average variable costs

0

$1000

$-----

200

$1000

$360

400

$1000

$840

600

$1000

$1440

800

$1000

$2160

1000

$1000

$3000

1200

$1000

$3960

1400

$1000

$5040

1600

$1000

$6240

1800

$1000

$7560

2000

$1000

$9000

Question 3 (20 marks) - Extended Response Question (references needed)

Many governments around the world have implemented heavy taxes on soft drinks and other sugary products in order to reduce the level of obesity among people. You are required to write an essay to critically evaluate the effectiveness of this policy. Make sure that you clearly address the following questions in your analysis.

(a) Using the supply and demand model explain how a sugar tax could reduce the sales of soft drinks (8 marks)

(b) Explain whether the demand for soft drinks is elastic or inelastic (4 marks)

(c) Compare the tax to alternative policies such as awareness creation programs and education campaigns (4 marks)

(d) Critically evaluate the effectiveness of the sugar tax as a policy in reducing obesity levels (4 marks)

Answered Same Day Apr 30, 2020

Solution

Soma answered on May 02 2020
142 Votes
Question 1 (10 marks) -Short Answer Question (references not needed)
Most cities and towns in Australia and many other places around the world are facing severe water shortages. One demand management approach that has been popular among policy makers over the years is pricing the water. Using the price mechanism can help ensure that the water is allocated to its best uses and the price of water reflects its full cost.
The table below sets out hypothetical data on total demand and supply of water for residential consumption in a typical city:
Based on the above data, answer the following questions:
(a) If the residential demand for water increases, but the water supply authority in the city is capable of supplying only 22.50 million litres of water per day, describe the situation in the market for water. (2 marks)
The above table shows the data for demand and supply for the water in a hypothetical city.
According to the above chart and the given table, the equili
ium price for water is 0.65 where the quantity demanded and quantity supplied of water are almost equal to each other.
Now the water supply authority in the city is assumed to supply only 22.50 million of water. As per the given data, the co
esponding quantity demanded will be 23.25.
Quantity demanded is more than quantity supplied and it will create a shortage in the market.
Now if we assume that the residential demand for water has increased, then the co
esponding quantity demanded will be more than 23.25 million litres per day.
As the shortage will increase in the market.
An increase in the demand, keeping the supply fixed will create a significant shortage in the market. It will lead to inefficiency in the market.
(b) What are the key influences on the elasticity of demand for residential water use that you think make its demand elastic at certain price ranges? (3 marks)
Elasticity of demand for water shows how the quantity demanded of water responds when the price of water rises.
The elasticity of demand for residential water consumption depends on various factors. Rainfall, location, rate structure, season and evapotranspiration are some of the key factors that influence the elasticity. Water is highly inelastic in nature because it is an absolute necessity for human life with no other alternatives. Hence the elasticity of demand is found to be highly inelastic implying people are less responsive to changes of water price. If the price of water rises, residents are less likely to respond through reducing their quantity demanded. According to standard utility maximization theory, if the residents wants to maximize utility from water consumption subject to budget constraint then the demand for water should the function of income, taste and preference, price of related goods and characteristics of house hold. But for water consumption, the determinant factors for elasticity of demand are found to be different. Evapotranspiration rates, rainfall, the pricing structure, and the season are some of the important factors that have a significant influence on elasticity of demand. Any change in such factors can make the elasticity of demand for residential water consumption elastic at lest over a certain price range. The price responsiveness also substantially varies in the short run and in the long run. The demand tends to be more elastic in the long run. (M. Espey, 1997)
(c) If the government imposed a $0.05 per 1000 litres ‘excise tax’ on producers for their water supplies over all price ranges, explain, with the help of a graph, how you would expect this to affect the water market and tax incidence. (5 marks)
Government imposed a $0.05 per 1000 litres ‘excise tax’ on producers
An excise tax will shift the supply curve upwards. This is because tax is nothing but the rise in cost of production for the producers.
Let us first derive the equation for demand curve and supply curve
The equation for demand curve
Y= -mx+C
The equation for the supply curve
P=0.1204x-2.1105
The equation for demand curve
P=-0.0358x+1.4245
At equili
ium
0.1204x-2.1105 = -0.0358x+1.4245
0.1204x+0.0358x= 1.4245+2.1105
0.1562x= 3.535
X=22.63124
P= -0.0358x+1.4245
= -0.0358* 22.63124+1.425
P=0.614801608
Now the from the demand equation and supply equation we have derived the
equili
ium quantity = 22.63
equili
ium price = 0.6148
When a tax of 0.05 is imposed , the supply curve will shift upwards.
The equation for the new supply curve will be
P=0.1204x-2.1105+0.05
= 0.1204x-2.0605
This is the equation for new supply curve
Equating with original demand curve we get
-0.0358x+1.4245= 0.1204x-2.0605
1.4245+2.0605= 0.1204x+0.0358X
3.485 = 0.1562X
X= 22.31113956
P= -0.0358x+1.4245
P=-0.0358* 22.31113956+1.4245
P= 0.625761204
New equili
ium quantity after the imposition of tax
X= 22.31113956
P= 0.625761204
The consumption of water has...
SOLUTION.PDF

Answer To This Question Is Available To Download

Related Questions & Answers

More Questions »

Submit New Assignment

Copy and Paste Your Assignment Here