BUS102 Introduction to Economics Assignment
Added on - 28 May 2020
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BUS102 GROUP Assignment T3171INTRODUCTION TO MICROECONOMICSNameProfessorInstitutionSubjectDate
BUS102 GROUP Assignment T3172Question 1a)According to the free trade agreement, Australia exports while Canada imports beef.Australia implementing this export subsidy will cause an increase in the price of thegood on its domestic markets and a consequent decrease in the price in the rest of theworld. A price increase will lead to the quantity of beef produced to increase becauseof the favourable export subsidy. However, the quantity of beef demanded indomestic markets will reduce because of an increase in prices of beef which willcause a reduction in sales and government revenue. Moreover, the quantity of beefexported will increase due to lowered costs of exporting beef to Canada.b)The supply and demand curves for both Canada and Australia in the diagram below.P2represents the free trade equilibrium price. At this price, the excess demand for beeffrom Canada will equal the excess supply of beef from Australia. The quantity of boththe imports and exports between the two countries is shown by the red line on eachcountries diagram below. This line represents the horizontal distance between thedemand and supply curves at the free trade price. The export subsidy implemented byAustralia results in an increase in consumer surplus in Canada while reducingconsumer surplus in their country due to increases in price. They also cause producersurpluses to reduce in Canada due to low prices of beef while increasing producersurpluses in Australia due to the increased price (Morgan, p. 276). Additionally, theexport subsidy has no effect on government revenue in Canada though it has anegative effect in Australia.
BUS102 GROUP Assignment T3173CanadaAustraliac)If Canada imposed animportquota onAustralian beef, it would influence consumer prices and quantity in both countries.The diagram below shows the free trade equilibrium price at P2.It is at this price thatthe excess demand by Canada equals excess supply from Australia.SDPP3P2P1QSIMDIMPSDP3P2P1QDEXSEX