EXAMPLE: Statement: Demand curves have a positive slope because of the law of demand.

BEA111Assignment1_V1.docx.pdf 100% + =] BEA111 Introduction to Markets and the Economy Assignment 1 c. A price floor that keeps a price above the equilibrium price in a market necessarily results in excess demand in the market. {3 marks} d. A negative, consumption-related externality results in & deadweight loss caused by greater equilibrium preduction than is socially optimal {3 marks} Unexpected low temperatures in the major wine grape producing regions of Tasmania caused a decline in both the supply and quality of grapes used for producing premium Tasmanian wines. Supply and demand analysis predict that this weather shock will result in lower prices for Tasmanian wines. (Hint: Include a detailed graphical analysis as part of your solution. Carefully label and explain your diagram. {3 marks} BEA111Assignment1_V1.docx.pdf 100% + o Question 2 Application of Supply and Demand to the Wholesale Electricity Market: The Economics of Dispatch. (Total: 35 marks.) The wholesale market in the National Energy market (NEM) is organised as an energy-only, uniform price auction. These auctions determine the price of the electricity and the dispatch order of the generators supplying electricity. Dispatch order refers to the order in which generators supply electricity to meet demand in the market. Uniform auction means that all generators that get dispatched receive the same price for each MWh of electricity dispatched. In these auctions, generators submit supply bids that report how much electricity the generator is willing to supply at different prices. The supply bids submitted by the generators to the market operator consist of 10 pairs of prices and quantities. Each pair reports the quantity of electricity the generator is willing to supply at the price. For example, suppose that a generator submitted the following bid: P(3) -100 25 50 70 300 Q(Mwh) | 100 50 20 25 35 70 This bid states that the generator is willing to supply 100 MWh at a price equal to $-100; the generator is also willing te supply 50 MWh at a price equal te 525. Conseguently, the generator is willing to supply a total of 150 MWh of electricity if the price is greater than 25 but less than 50. Or at a price equal to $50, the generator is willing to supply a total of 170 MWh of electricity. Suppose that Tasmania's wholesale electricity market is supplied by 5 generators. In the excel sheet called Bids.xisx are the supply bids for these generators for one auction. Note that the generatars use different fuels. For example, generators 1 and 2 are coal generators, whereas generators 4 and 5 are wind turbines. You will use these bid data to answer the following gquestions. How much is generator 1 willing to supply in the market price is $460? How much is generator 4 willing to supply if the market price is $460? How much are all the generators willing to supply if the market price is $460 (aggregate electricity). (2 marks) Plot the supply functions for generator 1 and generator 4 and include these in your write-up BEA111Assignment1_V1.docx.pdf UNIVERSITY of TASMANIA 100% + o Plot the supply functions for generator 1 and generator 4 and include these in your write-up (Hint: think carefully about what the supply functions look like). Provide possible explanations why the supply functions for the two generators are different. (4 marks) Create a table that reports the aggregate supply schedule for the market and provide the table in your write-up. Plot the aggregate supply function for the market and provide the diagram in your write-up. Again, think carefully about the shape of the supply function. (4 marks) University of Tasmania - CRICOS PROVIDER CODE 005868 BEA111 Introduction to Markets and the Economy Assignment 1 d. Suppose aggregate demand is perfectly elastic and equal to 830 MW. lllustrate the equilibrium in the same diagram you made in part c). Show the equilibrium price and quantity. Be sure to label all parts of your diagram. (5 marks) Make a table that reports the revenue earned by each generator. Compute aggregate revenue. (2 marks) Compute producer surplus. Explain why producer surplus and the aggregate revenue computed In part e) are different. (5 marks) Generator 4 is a wind turbine. Suppose that the available wind was not sufficient to produce the electricity the generator bid into the market. Compute the new if generator 4 cannot be dispatched. |llustrate the changes in the market and explain the changes to the equilibrium quantity and price. BEA111Assignment1_V1.docx.pdf UNIVERSITY of TASMANIA 100% + o Create a table that reports the aggregate supply schedule for the market and provide the table in your write-up. Plot the aggregate supply function for the market and provide the diagram in your write-up. Again, think carefully about the shape of the supply function. (4 marks) University of Tasmania - CRICOS PROVIDER CODE 005868 BEA111 Introduction 1o Markets and the Economy Assignment 1 d. Suppose aggregate demand is perfectly elastic and equal to 830 MW. lllustrate the equilibrium in the same diagram you made in part c). Show the equilibrium price and quantity. Be sure to label all parts of your diagram. (5 marks) Make a table that reports the revenue earned by each generator. Compute aggregate revenue. (2 marks) Compute producer surplus. Explain why producer surplus and the aggregate revenue computed in part e) are different. (5 marks) Generator 4 is a wind turbine. Suppose that the available wind was not sufficient to produce the electricity the generator bid into the market. Compute the new if generator 4 cannot be dispatched. |llustrate the changes in the market and explain the changes to the equilibrium quantity and price. (8 marks) Do the generators that supply the market benefit from the lack of wind? You must support your answer with evidence. (5 marks) BEA111Assignment1_V1.docx.pdf 100% + o Question 1 Analytical Reasoning using a Supply and Demand Model (Total: 15 Marks) Answer all parts of this question. The question involves a series of statements that require you to use the analytical tools and models you have developed to assess. For each statement you must provide arguments in support or arguments refuting the statement. You must use the appropriate theory supported with the appropriate model to support your arguments. Answers that are not supported with theory will receive a mark of zero. An example is provided to illustrate the approach to answering each of the questions. EXAMPLE: Statement: Demand curves have a positive slope because of the law of demand. lllustrative Solution: The statement is incorrect. The law of demand states that as prices increase, quantity demand decrease, and when prices decrease, quantity demanded increases. In the supply and demand moedel, law of demand is represented by movement along the demand curve. Therefore, demand curves have a negative slope as illustrated in the diagram. Moving from price P to the lower price P, results in an increase in quantity demand from @; to @,. End of Example a. A negative production externality necessarily results in an equilibrium in which too much output is produced relative to the social efficient cutput. {3 marks} BEA111Assignment1_V1.docx.pdf 100% + =] Statement: Demand curves have a positive slope because of the law of demand. lllustrative Solution: The statement is incorrect. The law of demand states that as prices increase, quantity demand decrease, and when prices decrease, quantity demanded increases. In the supply and demand medel, law of demand is represented by movement along the demand curve. Therefore, demand curves have a negative slope as illustrated in the diagram. Moving from price P, to the lower price P, results in an increase in quantity demand from @1 to @,. End of Example a. A negative production externality necessarily results in an equilibrium in which too much output is produced relative to the social efficient cutput. {3 marks} b. A local restaurant currently charges $20 for a popular fish dish and each night 100 customers order this dish. The same restaurant also has a side-order of chips on the menu at a cost of $5 per serve. When the price of chips increased to 55.50 sales of the fish dish fell to 90 customers per night. This result means that the cross-price elasticity of demand for fish with respect to chips is positive and greater than 3. {3 marks}