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##### ECO2MGG Assignment 2 (15% of total assessment) Due Date: Monday,-(Answered)

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ECO2MGG Assignment 2

(15% of total assessment)

Due Date: Monday, May 23rd 9:00 a.m.

Answer the following problems and illustrate with a diagram where appropriate.

Each problem is worth 3 marks and the total number of marks available for this

assignment is 15.

You may draw the diagrams by hand if you prefer.

Problem 1

Use the following information to work Problems a, b and

c.

Wholesalers of roses (the firms that supply your local

flower shop with roses for Valentine?s Day) buy and sell

roses in containers that hold 120 stems. The table

provides information about the Australian wholesale

market for roses. The demand schedule is the

wholesalers? demand and the supply schedule is the

Australian rose growers? supply.

Wholesalers can buy roses at auction in Aalsmeer,

Holland, for \$125 per container.

Price

Quantity

Quantity

(dollars

demanded supplied

per

container)

(millions of

containers per year)

100

15

0

125

12

2

150

9

4

175

6

6

200

3

8

225

0

10

a.

Without international trade, what would be the price of a container of roses and how

many containers of roses a year would be bought and sold in Australia?

b.

If Australian wholesalers buy roses at the lowest possible price, how many do they buy

from local growers and how many do they import?

c.

Draw a graph to illustrate the Australian wholesale market for roses. Show the market

equilibrium with no international trade and the market equilibrium with free trade. Mark the

quantity of roses produced by local growers, the quantity imported and the total quantity

bought.

ECO2MGG 2016: Assignment 2

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Problem 2 (based on problem 1)

Use the information on the Australian wholesale market for roses in Problem 1 to work

Problems a, b and c.

a.

If a tariff of \$25 per container is imposed on imports of roses, what happens to the price

of roses in Australia, the quantity of roses bought, the quantity produced locally and the

quantity imported?

b.

Who gains and who loses from this tariff?

c.

Draw a graph to illustrate the gains and losses from the tariff and on the graph identify

the gains and losses, the tariff revenue and the deadweight loss.

Problem 3

The table gives the demand and supply

schedules for chocolate brownies.

a. If brownies are not taxed, what is the

price of a brownie and how many are

bought?

Price

(cents per

brownie)

50

60

70

80

90

Quantity

Quantity

demanded

supplied

(millions per day)

5

3

4

4

3

5

2

6

1

7

b. If sellers are taxed 20? a brownie, what is the price? How many are sold? Who pays the

tax?

c. If buyers are taxed 20? a brownie, what is the price? How many are bought? Who pays

the tax?

Problem 4

Use the following figure to work Problems a, b and c.

The figure shows the market for North Atlantic tuna.

a.

What is the quantity of tuna that fishers catch

and the price of tuna? Is the tuna stock being used

efficiently? Explain why or why not.

b.

What would be the price of tuna, if the stock of

tuna is used efficiently?

ECO2MGG 2016: Assignment 2

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c.

If the government issues tradable permits to individual fishers that limit the total catch

to the efficient quantity, what is the market price of a permit?

Problem 5

Use the data on a mosquito control program in

the table to work Problems a and b.

a.

b.

What quantity of spraying would a private

mosquito control program provide? What

is the efficient quantity of spraying? In a

single-issue election on the quantity of

spraying, what quantity would the winner

of the election provide?

Quantity

(hectares

sprayed per

day)

1

2

3

4

5

Marginal

social cost

Marginal

social

benefit

(thousands of dollars per

day)

2

10

4

8

6

6

8

4

10

2

If the government sets up a Department of Mosquito Control and appoints a bureaucrat

to run it, would mosquito spraying most likely be underprovided, overprovided or

provided at the efficient quantity?

ECO2MGG 2016: Assignment 2

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