ARE120 Homework 5 Solution – Latest 2016
Copy and Pate below link into your Browser to buy tutorial
ARE120 Homework 5 Solution – Latest 2016
On the island of Tasmania, suppose the milk market is
characterized by the following conditions: (a) freely transferable marketing
quotas apply to milk sold for consumption as fluid (fresh) milk in Tasmania, at
a price Pf, (b) additional milk production, beyond the fresh milk quota, is
sold at the price for milk used in manufacturing, Pw which is lower than the
fluid milk price, (c) Tasmania is a price taker at the world market price for
manufactured dairy products, and (d) the fluid milk premium is sustained by
natural protection provided by Bass Strait (full of sharks) between Tasmania
and mainland Australia, and an embargo on fresh milk imports from mainland
Australia.
1. Draw a supply and demand diagram to illustrate
the economic consequences of introducing the quota policy on quantity produced,
consumed, and traded, relative to a situation without a quota program. Also, in
a table, describe the consequences of the quota policy for welfare of fresh
milk consumers, milk producers, and quota owners, in Tasmania relative to a
situation without a quota program, in terms of areas on your diagram. Who gains
and who loses from the quota policy?
2.
3. Suppose the Tasmanian Milk Marketing Board
undertakes a fresh milk promotion campaign funded by a tax of t per unit,
collected on all of Tasmania’s milk production. The advertising increases
consumer willingness to pay for milk by m per unit. On your diagram, show the
impacts of the advertising-induced increase in demand, and the tax used to
finance it, on (a) the positions of supply and demand, (b) and the prices of
milk sold for fresh and manufacturing purposes, (c) the total quantity of milk,
and (d) its allocation between fresh and manufacturing uses. Use the labels m
and t to indicate the magnitudes of the relevant shifts. In a table, describe
the consequences of the tax-funded advertising program for the welfare of fresh
milk consumers, milk producers, and quota owners, relative to no tax-funded
advertising program, in terms of areas on your diagram. (Assume consumer
surplus is equal to the usual area, behind the relevant demand, with or without
the advertising-induced shift.) Who gains and who loses from the tax-funded
advertising policy in the presence of the quota policy?
4.
5. Suppose the government eliminates the fresh
milk quota and does not pay any compensation to quota owners, but the Tasmanian
Milk Marketing Board continues to sustain its fresh milk promotion program
funded by a tax of t per unit, collected on all of Tasmania’s milk production.
In general terms, what are the implications of the elimination of the quota
program for the total benefits and costs of the tax-advertising policy and its
distribution between milk consumers, milk producers, and milk quota owners?
(Hint: To answer this question you should contrast the consequences of the tax-
advertising policy between the with-quota and without-quota scenarios.) What
does this analysis tell you about the returns to generic promotion by a
producer group in a small, open-economy setting?
No comments:
Post a Comment