Application problems for discussion in tutorials **(Topic 2) Student evaluation: A student was asked to draw a demand and supply graph to illustrate the effect on the market for smart phones of a fall in the price of lithium batteries, ceteris paribus. He drew the graph below and explained it as follows: Lithium batteries are an input to smart phones, so a fall in the price of batteries will cause the supply curve for smart phones to shift to the right (from S1 to 52). Because this shift in the supply curve results in a lower price (P2), consumers will want to buy more smart phones and the demand curve will shift to the right (from D1 to D2). We know that more smart phones will be sold, but we can't be sure whether the price of smart phones will rise or fall. That depends on whether the supply curve or the demand curve has shifted further to the right. I assume that the effect on supply is greater than the effect on demand, so I show thenal equilibrium price (P3) as befng lower than the initial equilibrium price (P1). o Quantity Do you agree with this student's reasoning? Explain. 2 (Topic 2) Almonds: This question relates to a recent article from ABCNews about growing almonds in Australia (https://www.abc.net.auews/rural/2024-02-04/almond-industry- expanding-in-australia-high-water-usage/103388210). b) o) ** Reflect on the except below (from the article). Which of the determinants of demand and/or supply is/are referred to here as having had a key impact on the market for Australian almonds? Using as simple diagram, explain the effects of this change on the market for Australian almonds. The horticultural foodbowl of the lower Murray has for decades been known for its vineyards, citrus and stonefruit orchards, but a global price shift has seen a new crop dominate the landscape, with big implications for Australia's most precious commodity water. In 2022, as a global glut of wine sent grape prices plummeting, grower Brett Rosenzweig made the decision to pull out his vineyards in the South Australian Riverland and expand his existing almond plantings. Mr Rosenzweig, whose family has grown wine grapes for three generations, is just one of many farmers turning to almonds to secure their futures, sparking remarkable growth in an industry that barely existed 20 years ago. ** The article states that California produces 80 per cent of the world's almonds. Suppose there is a drought in California, which means the price of Californian almonds jumps significantly. How would this affect the market for Australian almonds? ** (Extending to Topic 3) Suppose the government is concerned about the Australian almond industry's use of water. Why do you think the government might be concerned? In what ways might they intervene in the Australian almond market to reduce production of almonds? 3. (Topic 2) The market for toilet paper: You might remember supermarkets being emptied of toilet paper (and other essentials) during the early days of the Covid pandemic. a) * Use simple demand and supply analysis to illustrate what happened. Again: We usually start in equilibrium, and then think about: o Which curve is affected? How? e How do we expect the market to adjust to this change? Is this what happened? s What is the end result? b) **(Extending to Topic 3) What might be a sensible response (i.e. intervention) to manage the toilet paper crisis? What are the benefits and costs of this with respect to welfare and efficiency? c) **In spite on the massive shortage in toilet paper, suppliers did not respond by expanding their toilet paper production facilities (e.g. new or bigger factories). Why not