Question 1 [50 marks] Australia and Canada have a free trade agreement in which, Australia exports...

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Question 1 [50 marks] Australia and Canada have a free trade agreement in which, Australia exports beef to Canada. a. Draw a graph and use it to explain and illustrate the impact of trade on consumers, producers and the Australian economy. [5 marks] b. Now Canada imposes an import quota on Australian beef. Draw a graph and explain how this quota would influence the following factors in Canada: (i) price of beef; (ii) consumer surplus (CS) and producer surplus (PS); (iii) beef importers’ gain; (iv) efficiency of the beef market. [15 marks] c. The volume of import quota on Australian beef is less than Australia’s total export volume of beef to Canada. Explain how this import quota would influence the following factors in Australia: (i) quantity of beef exported to Canada; (ii) price of beef; (iii), consumer surplus (CS) and producer surplus. [15 marks] d. Suppose that the government decides to subsidise exports of beef by paying a certain amount for each tonne sold overseas. Explain how the export subsidy would affect the following factors in Australia: (i) domestic price of beef; (ii) the quantity of beef produced; (iii) the quantity of beef consumed, and the quantity of beef exported; (iv) consumer surplus, producer surplus, and government revenue. [15 marks] Question 2 [30 marks] “More than one billion of cups of coffee are consumed in Australia’s cafes, restaurants and other outlets each year, an increase of 65 per cent over 10 years. People are drinking less ‘instant coffee’ as espresso becomes more popular and new speciality coffee shops have been popping up all over Australia to satisfy demand for daily caffeine fix. Not only are people drinking more coffee, they are becoming more coffee-savvy and want premium brew even if it costs more.” Answer the following questions after reading the news clip above. a. How would you classify the espresso coffee market; are firms price takers or price makers? Explain. [4 marks] b. With the aid of an appropriate economic model, explain why there has been such an explosion in the number of coffee chains in Australia over the past ten years. [10 marks] c. Would firms in the market making positive economic profit in the long run? Explain. [6 marks] d. Would the impact of government subsidy to each existing firm change your answer in part (c) in the short run? Explain. [10 marks] ECO100 INDIVIDUAL ASSIGNMENT T218 ECO100 Introductory Economics T218, Individual Assignment due 22 September 2018 Page 3 Question 3 [20 marks] Suppose the tea market can be described by the following equations: Demand: P = 10 – Q Supply: P = Q -4 where p is the price in dollars and Q is the quantity in kilograms. a. What is the equilibrium price and quantity? [4 marks] b. Suppose the government grants a subsidy of $1 per kilogram of tea produced. What will the new equilibrium quantity be? What price will the buyer pay? What amount per kilogram (including the subsidy) will the seller receive? What will be the total cost to government? [12 marks] c. Draw the demand and supply diagram of the tea market and indicate the results in parts (a) and (b) on it. [4 marks]

Riyas K · Accepted Answer

Australia and Canada have a free trade agreement in which, Australia exports beef to Canada.
Australia can export beef to Canada if he price of Australian beef less than that of the Canadian Beef and there should be adequate demand for Australian Beef. In the given case Australia and Canada have a free trade agreement in which, Australia exports beef to Canada. This means that price of Australian beef is less than the price beef in Canada. When Australia exports beef to Canada domestic price of beef Canada is more than that of Australian. 
A) Draw a graph and use it to explain and illustrate the impact of trade on consumers, producers and the Australian economy.
The graph above shows the market for beef in Canada. D is the domestic demand curve for beef and S is the domestic supply curve of beef in Canada. Both the curve intersects at point e. Therefore point is e is the equilibrium point. When the market for beef in equilibrium at point e market price of beef in Canada is P and equilibrium quantity of beef is Q. Quantity supplied is equal to quantity demanded at equilibrium price of P. Total welfare is the area Sea. Out of that total consumer surplus is SaP and total producers surplus is the area Pea. As there is free trade agreement between Australia and Canada, Australia exports beef to Canada. As the Australia Export beef to Canada price of Australian beef should be less than the  domestic price of beef in Canada. In the graph price of Australian beef is Pw. Price Pw is less than the domestic price of P.  At price Pw quantity demanded of beef in Canada is Pwb and quantity supplied by domestic producers is Pwa. The excess of demand over supply ab is met through import from Australia. There is increase in total surplus that is shown as triangle eab. Half of the increase in surplus is accrued to consumers and remaining half is accrued to producers. 
B)
Graph above shows the impact of imposition of quota on import. Quota is the physical limit imposed on the quantity of goods imported. In the figure above quantity Q2 Q3 is the quota imposed by the government. Initial quantity imported from Australia was QQ1. After the imposition of quota by Canadian government maximum quantity that can be imported is Q2Q3. Due to import quota price increase to P1. Before quota domestic price was equal to the world price of P0. Due to quota domestic supply increases from OQ to OQ2. This is the production effect of quota. Due to increase in price domestic suppliers are ready to supply more now. As Quantity consumed initially was OQ1.

Question 1 [50 marks] Australia and Canada have a free trade agreement in which, Australia exports beef to Canada. a. Draw a graph and use it to explain and illustrate the impact of trade on...

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