Demand-Supply Diagram Showing the Equilibrium Outcome Prior to Government Intervention - Economics Assignment help

Assignment Task:

Each question in this part is worth 25 points in total. Each question contains multiple sub-questions. As always, you must answer all questions to the best of your ability, and justify all responses.

1. Suppose the ACT government decides that, in order to reduce greenhouse emissions, it wants to increase the number of household solar panels. Suppose the market equilibrium price in the solar panel market is $4000 per 2kW solar panel, and that at this price, 20,000 such panels are installed each year. The government has a target to increase the number of solar panel installations to 30,000 each year. It is considering three policies to achieve this goal: a subsidy on solar-panels, a price floor on solar panels, and a price ceiling on solar panels. Assume that demand and supply are neither perfectly elastic, nor perfectly inelastic.

a) Draw a demand-supply diagram showing the equilibrium outcome prior to government intervention.

b) Determine whether or not the desired increase in solar panel installations can be achieved through the use of an appropriate subsidy. If this increase can be achieved, perform a qualitative Welfare Analysis on the introduction of the subsidy. If this increase cannot be achieved, argue carefully why not.

c) Determine whether or not the desired increase in solar panel installations can be achieved by setting an appropriate price floor. If this increase can be achieved, perform a qualitative Welfare Analysis on the introduction of the price floor. If this increase cannot be achieved, argue carefully why not.

d) Determine whether or not the desired increase in solar panel installations can be achieved by setting an appropriate price ceiling. If this increase can be achieved, perform a qualitative Welfare Analysis on the introduction of the price ceiling. If this increase cannot be achieved, argue carefully why not. e) Now suppose that Demand for solar panels is perfectly inelastic. Which of the three policy proposals presented in parts (b), (c), and (d) would be effective for increasing quantity consumed of solar panels? Explain your reasoning. [Recall: A qualitative Welfare Analysis, as in parts (b), (c), and (d), requires you to find the new Consumer Surplus, Producer Surplus, Government Tax Receipts, Total Surplus, and any Deadweight Loss relative to the free-trade equilibrium.]

2. Until the early 1990's, telecommunication services in Australia was a monopoly run by Telecom Australia.

a) Explain what factors may cause telecommunications infrastructure to form a monopoly even in the absence of government intervention. b) Assuming marginal costs of production are slightly upward-sloping, perform a qualitative Welfare Analysis on the effect of giving Telecom Australia a monopoly in this market, relative to the efficient outcome.

c) The government wants to limit the size of any deadweight loss by instituting price controls in this market. The government chooses to implement average total cost pricing, where Telecom Australia is required to charge price at average total cost. Describe the short-run and long-run effects of this policy initiative.

d) Describe an alternative price control scheme the government could have implemented, and compare this new scheme to the policy initiative in part (c). During the early 1990's, Telecom Australia was renamed to Telstra. At this time, fixed costs of providing telecommunications fell drastically, until today where fixed costs of retail provision of telecommunications are very low.

e) Using appropriate diagrams, compare the welfare analysis in the monopoly case, to a welfare analysis of the long-run equilibrium outcome in the modern market assuming the modern market is perfectly competitive.

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