Deakin College MAE101/MAEP101 Economics Principles Assignment - 2019

This economics assignment analyzes several market scenarios, providing a detailed understanding of economic principles. The assignment begins with an examination of the impact of a price ceiling on the medicine market in the Philippines, discussing consumer and producer surplus, and deadweight loss. It then explores the effects of African swine fever on the pork and beef markets in China, illustrating shifts in supply and demand curves. The assignment further investigates the paper market in the USA, analyzing the factors contributing to price fluctuations and changes in market equilibrium. The analysis extends to the oil market, examining the implications of inelastic demand following production disruptions in Saudi Arabia. Finally, the assignment concludes by assessing the impact of a sales tax on market equilibrium, illustrating how it affects both supply and demand, and ultimately impacting the overall output level and employment. Each section includes relevant figures and references to support the arguments.

Running head: ECONOMICS PRINCIPLES
Economics Principles
Name of the Student
Name of the University
Author Note

1ECONOMICS PRINCIPLES
Table of Contents
Answer to question 1.......................................................................................................................2
Answer to question 2.......................................................................................................................3
Answer to question 3.......................................................................................................................5
Answer to question 4.......................................................................................................................6
Answer to question 5.......................................................................................................................6
Reference List..................................................................................................................................6

2ECONOMICS PRINCIPLES
CS
CS
PS
Supply
Demand
Price ceiling
Medicine output
Medicine Price
P0
Q
1
P
max
Q0 Q2
Answer to question 1
Figure 1: Price ceiling impacts on Medicine market
Source: (as created by the author)
As per the article, the government of Philippines has imposed a price ceiling on 120
prescription medicines including hypertension, cardiovascular disease, diabetes, chronic lung
diseases and cancers (Rappler 2020). As a consequence of that, average medicine pric is
expected to be declined by 56% as compared to the current price level.
As per the researchers, this lowering medicine price will enhance the consumer demand
as it reduces the meduicune expenditure for the general people.
The supply quantity will be improved in response to the improvement in the market
demand. However, the producer surplus will be minor in comparison with the consumer surplus.
The profit level decreases for the producers.

3ECONOMICS PRINCIPLES
Supply
Demand
Pork output
Pork Price
P0
Q
1
P1
Q0
The consumers are observed as most beneficial as a result of price ceiling. For this
reason, the consumers obtain more surplus than the producer surplus. Altogether, the economy
will suffer from dead weight loss as both the consumers and producers get deprived from some
portion of benefits.
Answer to question 2
Figure 2: African swine fever decreases the pork supply in China
Source: (as ctreated by the author)
According to the article, the African swine fever hhas caused a major loss in the pork
supply. Halpf portion of the country’s herds have encountered with this severe loss as a lot of
porks have lost lives due to the African swine fever (Brown 2020). The figure 2 states that the
shortage of beef supply increases the market price for beef above the normal price level. The
beef market faces a sharp hike in the price as the market demand could not make immediate
response to the change in the supply level. Deficiency in the beef production shifts the supply
curve towards the upward. In the figure 2, pork output is labeled along with the horizontal axis

4ECONOMICS PRINCIPLES
Supply
Demand
Beef output
Beef Price
P0
Q
1
P1
Q0
and rice is measured along with the perpendicular axis. It results in the hike in the price from P0
to P1 and quantity from Q0 to Q1.
Figure 3: African swine fever increases the demand for beef in China
Source: (as ctreated by the author)
The concerned article states that pork price has been skyrocketed on the account of
shortage in the pork supply. In this context, the consumers will have to shift their preferences
from pork to beef as to meet the protein demand. This will result in the enhancement of the
market demand for the beef. According to figure 3, the perpendicular axis measure the price and
quantity for the beef msarket is measured along with the horizontal axis. The augmented demand
leads the demand curve to the upward duirection. Meanwhile, this improvement in the demand
market cause hike in the price level from P0 to P1 and quantity from Q0 to Q1.

5ECONOMICS PRINCIPLES
S1
D2
D1
Paper output
Paper Price
P2
Q
1
P1
Q1 Q2
S2
Answer to question 3
Figure 4: Equilibrium position of the paper market changes
Source : (as created by the author)
The concerned article asserts that paper producer have reported to receive detrimental
impact during the last year in the USA. Sudden hike in the average ppaper price has resulted in
the congtraction in the consumer demand for the paper. According to that study, intensifying
pulp prices, transportation demand, import tariff, closing mills, decreased supply and shifted
exchange rate are accountable for regressive impact on the paper market (FSSI 2020). Figure 4
explains how change in both market demand and supply lead to the change in the equilibrium
position in the paper market (Publishers.asn.au 2020). Initially, the market equilibrium stays at
the intersection point of D1 and S1 curve. Thereafter, the position gets changed when decreasing
supply lowers the market demand for paper. As a result of that equilibrium price falls from P1 to
P2 and equilibrium quantity rises from Q1 to Q2.

6ECONOMICS PRINCIPLES
Lost revenue due to reduced
supply
Improved revenue for selling at
higher price
Oil output
Oil price
P2
P1
Q2 Q1
Answer to question 4
Figure 5: Inelastic demand in oil market
Source: (as created by the author)
As per the article, oil production has faced hugew loss due to the drone attacks in Saiudi
Arabia. The oil production has been stated to get declined by 5.7 million of barrels of crude oil
per day from the two refineries (Vox 2020). The inelastic demand of the oil products implies that
the change in price level gives negligible impact on the demand for the oil. In this case, price
elasticity of demand will be <1. As per the economic theory, the total revenue of the producer
depends on the price elascity of demand ofvthe oil products (Middle East Monitor 2020). As
coefficient of demand is less than 1, improvement in the market price enhances the total revenue
of the oil producers. Figure 5 elaborates that reduction in the oil production will raise the price
from P1 to P2, however, it will not cut down the revenue.

7ECONOMICS PRINCIPLES
Supply
Demand
Quantity
Price
P
P1
Q
P2
Tax per unit
Answer to question 5
Figure 6 : Tax impacts on demand and supply of the market
Source: (as created by the author)
Referring to the article, the imposition of sales tax will raise the price for the ionline
products. The sales tax is referred as 2% rise in price per commodity. According to figure 6,
P1P2 is the tax per unit which is proposed by the UK government for the sellers (BBC News
2020). The increase in the price level is expected to lower the demand as it augments the
consumption expenditure. The deteriorating demand consequently discourages the producers to
enlarge the production level. Altogether, this leads the economy to the lower output level which
further aggravates the unemployment condition of the country.

8ECONOMICS PRINCIPLES
Reference List
BBC News. (2020). Johnson backs tech tax despite Trump's threats.
https://www.bbc.com/news/business-50656106
Brown, T. (2020). China’s pork crisis is bigger than you think. [online] MarketWatch.
https://www.marketwatch.com/story/chinas-pork-crisis-is-bigger-than-you-think-2019-11-11
FSSI. (2020). Why Is the Cost of Paper Increasing? | Top 6 Reasons.
https://www.fssi-ca.com/top-6-factors-affecting-the-cost-of-paper/
Middle East Monitor. (2020). Saudi Arabia temporarily cuts oil production.
https://www.middleeastmonitor.com/20190915-saudi-arabia-temporarily-cuts-oil-production/
Publishers.asn.au. (2020). News - Australian Publishers Association.
https://www.publishers.asn.au/news/paper-price-hike-a-perfect-storm-for-australia
Rappler. (2020). Angara backs imposing price ceiling on 120 medicines.
https://www.rappler.com/nation/242935-angara-back-imposing-price-ceiling-medicines
Vox. (2020). Why crude oil prices keep taking us by surprise.
https://www.vox.com/2016/4/13/11401564/crude-oil-prices-predictions