Economics Homework: Microeconomic Analysis of Champagne and Bees

This economics assignment analyzes two distinct scenarios. The first part examines the law of demand in the context of the champagne market, explaining how price increases can lead to decreased demand, particularly for luxury goods. The second part delves into the issue of declining bee populations, discussing the concept of positive externalities in relation to beekeeping and pollination. It explores the factors contributing to bee decline, such as pesticide exposure and disease, and considers potential government interventions like taxes and subsidies to achieve social efficiency. The assignment references relevant economic principles and provides a concise overview of market dynamics and external benefits, supported by research and real-world examples.

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Answer 1
The law of demand states that when the price increases, the demand decreases. The
rise in the price of champagne from P1 to P2 will lead to decrease in the quantity demanded
from Q1 to Q2. The article states that the champagne industry have launched successful
marketing campaign which changes the taste and preference of the consumer. The reason
behind this is that an increase in the price, people will tend to buy less amount (Bade &
Parkin, 2015). Champagne is also considered as a luxurious good. It is also known that
luxurious goods are known to have elastic demand. For this reason, the rise in price will lead
to decrease in demand. Necessity goods are known to have inelastic demand while the
luxurious good are known to have elastic demand. For this reason, the economists feared that
a sharp rise in the price of champagne will lead to a decline the quantity demanded and will
also contract the champagne market. This works accordingly with the law of demand that
states that the quantity purchased is known to vary inversely with the price. This will take
place when the opportunity cost of the consumer will be increasing, they might give
something else or might also switch to a substitute product (Baumol & Blinder, 2015). The
law of demand also states that as the price of the good will be increasing, the quantity
demanded will be decreasing, on the other hand, as the price decreases, quantity demanded

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will be increasing. For this reason, it can be stated that, the price of champagne is known to
have a negative relationship with the demand.
Answer 2
According to the Canadian Association of Professional Apiculturists, during the last
year about 58 percent of the bees died last winter because of the long winter in Ontario while
about 19 percent of the swarms died in other provinces (Bees go online to build the buzz on
their health | CBC News. 2019). The survey also states several factors which affects the
health of bees which includes exposure to pesticides along with nosema disease. Last winter,
US have lost more than 30 percent of bees each year.
External benefits is the benefit that an activity provides to a party which is not the part
of the transaction (Narjes & Lippert, 2019). The positive externality is also known as the
benefit which is provided to a party which cannot control whether the transaction activities
will be taking place. The external benefit provided by the bees is that, bees help in
pollinating the plants which contributes to the biodiversity. Therefore, pollination is the
external benefit of beekeeping. Bees are also known to produce agricultural benefits by
pollinating flowers.
As bees are known to pollinate one third of the food (Narjes & Lippert, 2019), the
declining bee population is known to be a severe problem in the industry. The government

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can impose tax and subsidies in order to influence consumption and production for achieving
social efficiency. There has been also invention of new technology known as Aker which
have been used as the open source beehive plans (Lloyd., 2017). The social efficiency is
known to take into account all the private as well as the social cost. The social welfare is also
known to be optimised when the marginal social benefit is known to be equal to the marginal
social cost.
In order to reach the socially efficient equilibrium, the marginal benefit should be equal to the
marginal cost. Therefore, social efficiency takes place at that point when the marginal social
cost will be equal to the marginal social benefit.

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Reference list
Bade, R., & Parkin, M. (2015). Foundations of microeconomics. Pearson.
Baumol, W. J., & Blinder, A. S. (2015). Microeconomics: Principles and policy. Nelson
Education.
Bees go online to build the buzz on their health | CBC News. (2019). Retrieved from
https://www.cbc.ca/news/technology/bees-go-online-to-build-the-buzz-on-their-
health-1.2960909
Lloyd, P., Maclaren, D., Bardsley, P., & Lloyd, P. J. (2017). Competition in the Manuka
Honey Industry in New Zealand(No. 2033).
Narjes, M. E., & Lippert, C. (2019). The Optimal Supply of Crop Pollination and Honey
From Wild and Managed Bees: An Analytical Framework for Diverse Socio-
Economic and Ecological Settings. Ecological Economics, 157, 278-290.