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Supply of Beef in Canadian Market

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Added on  2020-05-28

Supply of Beef in Canadian Market

   Added on 2020-05-28

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Running head: MICROECONOMICSMicroeconomicsName of the universityName of the studentAuthor Note
Supply of Beef in Canadian Market_1
1MICROECONOMICSAnswer1:a)As Australia is exporting subsidised beef in Canada, it will reduce the beef price inCanada as the export cost of this product will be decreased. However, domestic price for beefwill be increased. This is because excess supply of beef in Canadian market will reduce thedomestic supply. This will create excess demand of this good in Australian domestic market(McGovern 2017). Moreover, this excess demand will increase the domestic price of beef andwill further decrease the amount of consumer surplus of Australians. As the market demand of beef will be increased in Canada, due to its fewer prices,production of beef in Australia will be increased. The quantity of beef demanded will be increased in Canadian market, due to its fewerprices. On the other hand, domestic demand will be decreased. This will happen as thedomestic price of beef will be increased.Total quantity to exported beef will be increased as demand of this product will beincreased in Canada, due its fewer prices.
Supply of Beef in Canadian Market_2
2MICROECONOMICSOutputPriceQ0P0MDCXSAPCPAQSCOFigure1: Effect of export subsidySource: (created by author)In the above figure, the demand curve of Canada and supply curve of Australia is alsodrawn. When the Australian government does not provide any subsidy on beef export, theequilibrium price will be P0. However, after imposing subsidy, Canada will buy eachkilogram of beef at PC price level. Before imposing subsidy, Canada could purchase Q0 unit ofbeef. After imposing subsidy, Canada will buy QSC. Hence, total demand will be increased.
Supply of Beef in Canadian Market_3
3MICROECONOMICSDemand CurveSupply CurvePriceOutputOABCDEFGHPAPCPFTDASAb)Figure2: Total surplus of AustraliaSource: (created by author)In the above diagram, supply curve and demand curve of beef in Australia is shown.Here, PFT represents the equilibrium price level at a free trade situation. At this free tradeprice level, excess demand of Canada will be equal to excess supply of Australia. However,after imposing export subsidy, beef price of Australia will be increased. This is shown by PAin the above diagram. Increased beef price of Canada is shown by PC.The amount of consumer surplus for Australia will be - (A+D). It means consumersurplus of Australian citizens will be decreased after imposition of export subsidy. As beef price will be increased in the Australian domestic market, beef producers willearn surplus revenue. International demand for beef will also be increased. The amount ofproducer surplus will be (A+D+F).
Supply of Beef in Canadian Market_4

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