Microeconomics - Beef in Australia

Added on - 28 May 2020

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Running head: MICROECONOMICSMicroeconomicsName of the universityName of the studentAuthor Note
1MICROECONOMICSDemand CurveSupply CurvePriceOutputOADCBEFGHPAPCPFTDASAAnswer1:a)Export subsidy will help to increase the supply of beef in Canadian market due to thislower price. This will further reduce the domestic supply of this product in Australian market.However, the amount of domestic demand will remain same. Hence, this export subsidy willincrease domestic price of beef in Australia (Matusz and Tarr 2017). The quantity of beefproduced will be increased due to its increasing supply in Canada. Overall beef demand willbe increased. Moreover, the quantity of beef exported will be increased.b)Figure1: Total surplus of Australia after export subsidySource: (created by author)
2MICROECONOMICSSupply CurveDemand CurvePFTPCPAOAEFGHDCBSCDCPriceOutputBeef price for Australian consumers will be increased due to excessive demand forbeef. Beef producers will decrease their supply of product in domestic market and willincrease the amount of supply in Canadian market (Feenstra 2015). Hence, the amount ofnegative consumer surplus (CS) will be (A+B).On the other side, producers will earn more revenue by exporting more beef in Canadianmarket. They can earn more profits. Hence, producer surplus (PS) will be (A+B+F) amount.Total surplus of Australia will be (CS+PS) = F. Moreover, government revenue of Australiawill be decreased by (PFT- PA) amount.c)Figure2: Effect on import quota on Canadian marketSource: (created by author)
3MICROECONOMICSAfter imposition of import quota, Canadian economy will face some changesregarding welfare of the economy. This can be calculated by above figure. Here, consumerprice of beef in Canadian market will be increased by (PC-PFT)amount. Hence, consumer ofCanada will face a negative surplus ((Matusz and Tarr 2017). Here the amount of negativeconsumer surplus (CS) will be (A+B+C+D). On the other hand, producers will earn morerevenue as domestic demand for beef will be increased. Here, producer surplus (PS) will beA. But, benefit of beef importers will be decreased. They will not import more beef withhigher prices. Moreover, the dead-weight loss will be (B+C+D+F+G+H).d)Business Diversification:The government of a country can increase its business diversification byimplementing various trade protection policies. Due to free trade, a country can tend to bespecialised for a particular product (Schuknecht 2017). Hence, it will lose its self-sufficiency.However, after imposition of trade protection policy, this country cannot import those goodsin which they do not have specialisation. Hence, they will produce those goods in theirdomestic market. As a result, the country can be self-sufficient by increasing businessdiversification.Balance of trade adjustment:The balance of trade (B.O.T) for a country can be negative due to excessive imports.Due to specialisation, B.O.T of this country will be negative (Schuknecht 2017). However,after imposition of trade protection policy, the country will produce almost all necessarygoods in their domestic market. This will further help this country to enhance surplus in theirB.O.T.
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