Microeconomics Assignment

Added on - 28 May 2020

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Running Head: MICROECONOMICSMicroeconomicsName of the StudentName of the UniversityAuthor note
MICROECONOMICS1Table of ContentsAnswer 1..........................................................................................................................................2Answer a......................................................................................................................................2Answer b......................................................................................................................................3Answer c......................................................................................................................................4Answer d......................................................................................................................................5Answer 2..........................................................................................................................................6Answer a......................................................................................................................................6Answer b......................................................................................................................................7Answer 3..........................................................................................................................................8Answer a......................................................................................................................................8Answer b......................................................................................................................................8Answer c......................................................................................................................................9Answer d....................................................................................................................................10Answer 4........................................................................................................................................11Answer a....................................................................................................................................11Answer b....................................................................................................................................14References......................................................................................................................................16
MICROECONOMICS2Answer 1`The free trade agreement between Canada and Australia allows transaction between thetwo nations without any restriction. Some countries are in favor of trade and support exportcompeting industries. While others to protect their domestic industries often restricts importseither by raising price of import with import tariff or by putting an import quota (Feenstra 2015).Both the policy of an export subsidy and import quota are analyzed with their welfare impacts.Answer aThe policy of export subsidy offers exporters incentive to raise export. Following figuredescribes the effect an export subsidy.Figure 1: Effect of export Subsidy(Source: as created by Author)
MICROECONOMICS3The above figure represents the beef market in Australia. The domestic demand curve forbeef is DD while the domestic supply curve is SS. Price of beef in the global market is PW. Atthis price, demand of beef in the domestic market is QD0. The domestic suppliers willing tosupply QS0amount of beef at the price. The supply of beef at the world price exceeds domesticdemand. The rest, (QS0- QD0) are exported. Now suppose, Australian government want to raiseits beef export. For this, a subsidy of unit s is proposed to be given to the beef producers (Balassa2014). The immediate effect of subsidy is to increase the price received by domestic producers.Producers now receives a price of PW1. Domestic consumers now faced with a high price reducetheir demand from QD0to QD1. Beef producers in Australia receiving a high prices are nowencouraged to produce more. As a result, supply of beef in the domestic market increases fromQS0to QS1. The reduction in domestic demand combines with an increase in domestic supplyraises export The quantity of beef exported after the export subsidy is (QS1– QD1). This is howthe quantity of beef exported from Australia to Canada increases when government decides toprovide an export subsidy to the beef sold in the overseas market.Answer bThe effect of total surplus or welfare will be understood by comparing consumer surplus,producer surplus and total surplus before and after the subsidy. Before subsidy, consumer inAustralia were getting beef at the world price of PW. At price PW, the consumer surplus receivedis given as (A+B+M). After the subsidy, the export of beef raises. The increased export of beefcreates a supply shortage and raises price in the domestic market to PW1. With a high price, theconsumers receive a surplus of M only. The loss in consumer surplus is the area (A+B). Theimporting country that is Canada now obtain imported beef at a lower price of PW2(Blonigen2016.). The area G adds to the consumer surplus to the importing country. Australian beef
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