1. Draw a diagram showing the 2020 annual market for instant noodles in Australia if the average price was $1.00 per 100 grams. Include a title and label the demand curve, supply curve, equilibrium price and quantity.
   1. marks)

1. Explain why $0.60 per 100 grams is not an equilibrium price. If the market price were temporarily at $0.60 per 100 grams explain how the market through the price mechanism would return to equilibrium.
   1. marks)

1. Assume the annual market for instant noodles in Australia in 2022 is initially the same as 2020. Explain why an increase in the price of wheat will affect either the demand or supply curves and how this will affect the price and the amount of instant noodles sold in Australia in 2022. Draw and use a diagram to help explain your answer.

(15 marks)

1. Why did the price of instant noodles rise in Japan, even though any increase in the price of wheat has yet to flow onto minute noodle producers?

{You do not have to draw a diagram for this question}.

(5 marks)

Q.2 - 40 marks (1-5 sentences + calculations per section)

Consider the market for single bedroom rental apartments in Hobart in 2022 as shown in the diagram below.

1. What is the market equilibrium price and quantity of single bedroom apartments in Hobart? Explain why it is an equilibrium.

(5 marks)

1. Calculate the consumer, producer and total economic surplus for the market for single bedroom rental apartments in Hobart in 2022.

(10 marks)

1. Consider if the Tasmanian government were to introduce a legally enforced price ceiling of

$300/week that the price (rent) of single bedroom apartments in Hobart can not be above.

1. Draw a diagram that that shows the effect of the price-ceiling on the single bedroom rental apartments in Hobart. Explain what would happen to the number single bedroom apartments supplied and demanded?

(10 marks)

1. Calculate the consumer surplus and producer surplus and compare it to the initial situation to determine who is better and worse off with a price ceiling of $300/week. Is there any deadweight loss from a price ceiling of $300/week? If so calculate the size of the deadweight loss

(15 marks)

Q.3 - 50 marks (1-3 sentences per 5 marks + diagrams)

Assume that supply curve for litres of petrol in the weekly retail market for petrol in Australia in 2022 is perfectly elastic and that demand is downward sloping.

1. Explain why in the retail petrol market in the absence of any taxes there is likely to be a negative consumption externality.

(5 marks)

1. Suppose that the consumption externality is $0.44 cents per litre sold. Explain and show by drawing a carefully labelled diagram, that without any government intervention the amount of petrol traded is higher than what is socially efficient and results in a dead-weight loss to Australia.
   1. marks)

1. Explain and show by drawing a carefully labelled diagram how a Pigouvian tax on petrol consumers could reduce the amount of petrol bought and sold to the socially efficient level. {Recall a tax on demand, lowers the demand curve and where it intersects with supply gives the pre-tax price. WS06-Qu8 demonstrates a tax on demand and Lecture05-Topic 4

Addendum page 11, shows a demand subsidy}

1. marks)

1. Explain and show by drawing a carefully labelled diagram how an excise tax of $0.44 per litre levied on petrol sellers could achieve the same result in b and also reduce the amount of petrol bought and sold to the socially efficient level.
   1. marks)

1. Why does the government collect excise tax from the sellers of petrol (petrol stations) rather than motorists who consume and burn the petrol in their cars?

(5 marks)

1. At the 2022 March Budget, the federal government reduced the petrol excise tax by half to $0.22 cents per litre to ease the pressure on the cost of living. Explain why most economists said it would ease the cost of living and reduce the price of petrol by $0.22, but thought it was bad microeconomic policy? Why might income handouts increase the cost of living, but from a microeconomic policy perspective not be so bad?

{You do not have to draw a diagram for this question}.

1. marks)

Q. 4 - 40 marks (1-3 sentences + calculations per 5 marks)

Consider a rock concert that is to be held at Cornelian Bay Oval in Hobart over 25-26 Sept. 2023. The rock concert is estimated to contribute $300,000 in economic benefits, consisting of $200,000 in consumer surplus to those that attend and $100,000 in producer surplus to the firm organising the concert. However, the concert will also cause excessive noise that will impose a cost of $180 on each of the 500 residents in the area. Assume there are no other external costs or benefits.

1. Is it socially efficient for the concert to be held? Why?

(5 marks)

1. If the rock concert had the right to excessive noise, would the concert be held?Explain who would be the "winners" and "losers" in this situation.

(5 marks)

1. If the locals had the right to no excessive noise, explain what the rock concert could do to get the locals to agree for the concert to be held. Explain why the firm has an incentive to do this and why locals would agree, by examining their net benefits.

(10 marks)

1. If there were costs involved with any payments of cash or tickets from the rock concert to each local or vice versa of $30, Explain who should be assigned the property rights to achieve the socially efficient outcome.

(10 marks)

1. Suppose that price of tickets to the concert are $120 (and can be re-sold at that price), but the marginal cost to the firm of each ticket is only $18 and the only transaction cost is a $2 fee the rock concert must pay to deliver the tickets to locals. Explain how the rock concert tickets could be used in Coasean Bargaining to increase the net or social, economic surplus.

Explain why this works even if a local doesn't value going to the concert at $120

(10 marks)

Q. 5 - 50 marks (2-5 sentences + calculations per question)

Price Elasticity of Demand

a. If a 10 per cent increase in the price of Kellogg's cereal causes a 25 per cent reduction in the number of boxes of cereal demanded, what is the price elasticity of demand for Kellogg's cereal? Is demand for Kellogg's cereal elastic or inelastic? (10marks)

b. What is the advantage of the midpoint formula for calculating elasticity? (10marks)

c.Briefly explain whether the demand for each of the following products is likely to be price

elastic or price inelastic. (10marks)

i. Milk

ii. Frozen pizza iii. Cola drinks iv. Prescription medicine

d. Research has estimated that the price elasticity of demand for soft drinks is -0.78, while the price elasticity of demand for Coca-Cola is -1.22. Coca-Cola is a type of soft drink, so why isn't its price elasticity of demand the same as the price elasticity for soft drinks as a whole? (10marks)

e. Assume that the Australian Football League (AFL) reduces the prices of tickets by 50 per cent for tickets to games on Monday nights. The number of Monday night game tickets sold increased by 80 per cent. Is this enough information to allow us to calculate the price elasticity of demand for tickets to football games? Briefly explain. (10marks)