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Q1. The article calls for public policy initiatives to address animal welfare andenvironmental concerns associated with dairy farming. With reference to economicconcepts covered in this course, explain why the government might want to intervene in thedairy market.AnswerThe dairy farming in Australia is going through the crisis. The dairy products are cheap, andthere are a lot of fluctuations that are happening in the markets on both domestic and globalfront. The farmers are facing financial problems due to this. Also, the dairy cows are beingexploited, and the environment is getting adversely affected. So, it is necessary for public policyinitiatives to address animal welfare and environmental concerns associated with dairy farming. It is depicted in the article that the self-interest of the industrialists in dairy farming is producinginefficient results. For example, it is written in the article that the industrialist is making thedairy cows subject to the continuous cycle of impregnation, and are artificially inducing calvingand milking for increasing their productivity. Thus, this is the scenario of market failure as herethe allocation of goods and services are not efficient enough for the dairy activities (Harvey,2013). Improvement is required in this scenario for the betterment of the society. Thus, thegovernment needs to intervene in this.There are different types of goods in the economy. Common goods or common resources arethose that are rival, but they are not excludable. Public goods are those that are neitherexcludable nor rival (Betz, 2014). The dairy farm is a common resource because it has all thecharacteristics of the common resource, i.e. it is rival but non-excludable. Rivalry means thatwhen the dairy farm is used by one consumer or person, its availability or usability for other1

people and consumers declines. For example, the cow has produced milk and a consumer comesand consumes the milk, so he has declined the availability of the cow’s milk for other consumers.Non-excludable means that the consumers cannot be prevented from making use of the dairyfarm (Betz, 2014). Hence, it is a common resource. So, a government needs to intervene becauseif the resource can be used by anyone, so it will get destroyed, and people will make unethicaluse of it. With government interference, the resource use could be regulated, and it could beused properly. The process of animal welfare is a negative externality. Negative externality means that theeconomic transaction’s cost is borne by a third party (Henderson, 2014). The third parties are thepeople, companies, owners', etc. who are affected indirectly. In the article, it is mentioned thatdue to the livestock farming, the climate is getting affected so the people who live in that climateare the third parties, and they suffer due to this negative externality. Therefore, if the governmentintervenes in the dairy farming activities, it could reduce this negative externality by makinglaws, policies or rules in which the third parties are protected from getting affected by theactivities of farming and dairy. 2

Q2. A tax on dairy products is one public policy initiative the government might consider.Perform appropriate economic analysis to explain how a tax could be used to address theanimal welfare and environmental concerns raised in the article. Discuss the pros and consof using such a tax as a policy initiative.Answer In the above diagram it is depicted that the demand and supply of dairy products were happeningat Qm. When the government imposed the tax on the dairy products, the price got increased, andthe quantity demanded fell to Qo. The social cost, private costs, is also depicted in the imageabove. Thus it is clear from the diagram that by levying a tax on the dairy products, the3

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