ECON111- MICROECONOMIC PRINCIPLES - Case Study - Economics Assignment

Internal Code: MAS5278

Economics Assignment:

Scenario: Assume that Australian economy is closed to international trade and the demand and supply curves for figs are: Demand: P = 100 – 5Q Supply: P =20+5Q P is the price of figs per kg expressed in Australian dollars and Q is expressed in thousands of kg. Questions:    Q1. Find the equilibrium price and quantity and represent this equilibrium in a supply and demand diagram. Q2. Show on the same diagram and calculate the size of: a) Consumer surplus b) Producer surplus c) Total surplus at equilibrium. Q3. Assume now that the Australian economy is open to international trade and the world price for figs is $40 per kg. At this world price how much is supplied by domestic producers and how much is imported from foreign producers? Show this on the same diagram. Q4. Following the opening of the economy to international trade, show on the same diagram and calculate the size of the: a) Consumer surplus b) Producer surplus c) Total surplus Based on your calculations, explain whether as a result of international trade: a) Firms are better off? b) Workers are better off? c) Society is better off? Q5. Now suppose the Australian government following lobbying from Australian fig producers imposes a tariff of $10 per kg. Show on the same diagram and calculate what happens to domestic supply and imports following the imposition of the tariff. Q6. Following the imposition of a tariff, show on the same diagram and calculate the size of the: d) Consumer surplus e) Producer surplus f) Total surplus By comparing your calculations with your answers in Q4, explain whether the tariff imposition makes: d) Firms better off? e) Workers better off? f) Society better off? Q7. From a consequentialist perspective that has as its objective allocative efficiency, which situation is the most ethically preferred for the Australian economy among the followings? a) Closed economy (no international trade) b) Free international trade c) International trade with tariff protection Q8. Consider the free trade situation in Q3 & Q4. Assume that recently a large overseas fig producer has been subject to an International Labour Organization (ILO) inspection and found to be using forced labour. The company has promised to eliminate forced labour from its overseas plantations. Discuss the potential impact of this policy on the price in the Australian fig market. Q9. Given the price change you explained in Q8, are (i) domestic consumers (ii) domestic producers and (iii) society better off in comparison to the free trade situation in Q3 & Q4? Explain briefly the trade-off between efficiency and fairness. Calculations of surpluses are not necessary. Q10.From an ethical perspective, how can a ban on forced labour or human slavery be justified? In your answer clearly, state the ethical approach you are adopting.