MAE101: Economic Principles -Key Microeconomic Concepts - Economics Assessment Answer

Task 1 Economics Assessment Task

A bounty on the toad

The cane toad (Bufo marinus) is an introduced pest that has been particularly destructive to some native Australian wildlife. Some Australian politicians have called for a bounty as a solution to the cane toad epidemic. The idea is that people would be paid a fixed dollar amount for each cane toad that they kill and turn in to authorities. Using economic principles, answer the following two questions. (No data is needed to complete this task.)

(a) What is the likely impact of the bounty on the number of cane toads killed? (1 mark) (b) Will a bounty necessarily result in a reduction of the population of cane toads? Explain your answer.

Task 2: Breaking bad -

economic incentives and the international drug trade The production and distribution of drugs is illegal in most countries. Authorities prosecute drug producers and consumers, with varying success. In this task we explore how developments in legal markets may spill over to affect illegal markets. We will analyse the Mexican drug trade. This case study comes from the article by: Oeindrila Dube, Omar García-Ponce and Kevin Thom. 2016. From Maize to Haze: Agricultural Shocks and the Growth of the Mexican Drug Sector, Journal of the European Economic Association, 14(5):1181–1224.

 (a) In 1994, Canada, the USA, and Mexico established the North American Free Trade Agreement (NAFTA). NAFTA reduced Mexico’s import tariffs on corn, resulting in a 20% drop in the price of corn in Mexico. With the aid of a diagram, illustrate the market for corn in Mexico before and after the introduction of NAFTA. Explain the impact this is likely to have had on domestic Mexican production and consumption of corn, and economic welfare. (No data is needed to complete this task.)

(b) Some Mexican corn farmers in economically depressed areas are able to use their land to grow marijuana and poppy plants (used to produce opium). Use demand and supply analysis to illustrate the market for illegal crops before and after NAFTA. Explain why developments in the corn market may or may not affect the production of crops used to produce drugs.

 (c) Use the Mexican Crop Data in the Assessment Resources folder (on the MAE101 Cloud site) to illustrate the association between the price of corn and the total value of marijuana seized by the Mexican army.

1 Is there any noticeable pattern in the data? What economic principles can you use to explain this pattern in the data?

(d) One feature of the Mexican drug market is the presence of drug cartels. With the aid of a diagram, illustrate and discuss the production and price decisions of a drug cartel.

(e) Another feature of the Mexican drug market is the escalation of cartel related violence.

2 Rival groups clash to secure land for growing illegal crops. Violence is also used by cartels to enforce cooperation between cartel members. How might the price of corn affect drug cartel violence? 

(f) Reflecting upon this case study and your answers to the questions above:

i. Which outcomes were intended? 

ii. Were there any unintended consequences? 

iii. Discuss two policies that you would recommend in response to this situation.

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