Please help me to solve question 6,7,8,9. Thanks a lot!
ECONIOOIM: INTRODUCTORY MICROECONOMICS ASSIGNMENT 1: SEMESTER 1, 2020 Due: Tuesday, May 5th, 2pm Assignments must be submitted via the LMS subject webpage. Remember to keep a copy of your assignment, This assignment will account for 15% of your nal grade, Maximum word limit: 1250 words (diagrams and equations do not count toward the word limit.) Points are awarded according to the quality of the answers. Most questions can he answered with a supply and demand graph and one to two sentences. The banana is one of Australia's most commme consumed fruits. Each year, over 95% of households will buy at least one banana and the average person in the population will conslune roughly 16kg. While bananas come in over 1,000 varieties, the Cavendish banana accounts for just over half of global production and 97% of production in Australia. Since the early 20005, Cavendish bananas have been under threat om a fungus known as Tropical Race 41 This fungus has the potential to make the Cavendish banana go extinct. In response, the Australian government has placed a stringent quarantine policy for the importation of bananas from other countries such as the Philippines, which are the low-cost producers in the region. Bananas are produced in only a few areas of Australia and the crop is frequently disrupted by typhoons. In this problem set we will explore how these typhoons are likely to impact the decision of farmers to plant bananas and the incentives that exist when a country is allowed to export a commodity but not import it. Part 1: Suppose that the demand for bananas is given by: QD( p) = 1,500, 0007503001), where QD(p) is quantity demanded in kilograms of bananas and p is the price. Further suppose that there are many identical sellers in the domestic market who can each choose to plant bananas. If a seller chooses to produce bananas, she will incur a planting cost of $2100 per kilogram at the beginning of the year and must pay an additional $0.50 per kilogram to harvest the bananas at the end of the year at the optimal farm scale of 12,500 kg of bananas. You may assume that the planting cost includes the opportunity costs associated with the allocated land, Thus, at the beginning of the year (when both planting and harvesting costs are part of total opportunity cost), the total amount of bananas planted is given by: 0 ifp32.50 Note that supply can be drawn as a straight horizontal line at a price of $2.50. Question 1: Draw the supply and demand system and clearly mark the equilibrium outcome. Shade in the area that is the consumer surplus. (5 points) Question 2: What is the elasticity of demand at the equilibrium price and quantity? Is d-and elastic or inelastic? (2 Points) Question 3: Suppose that there is a very large number of foreign producers in the Philippines who can also produce bananas. In the absence of the import ban, it would be possible to purchase any number of bananas from the Philippines at a price of $2.00. Suppose that the government announces that it will be lifting the import ban on bananas in one year. In this time frame, domestic farmers can save on both the planting and harvesting costs if they choose to not produce. Draw the supply and demand system with inter-national trade. Shade in the consumer surplus. Explain why there will be no domestic production. (5 points) Part 2: Suppose that in a given year, 110 farmers have chosen to plant bananas and each one has chosen to plant 12,500 kilograms. Due to the length of the planting cycle, no other banana producers can enter into the market and sell during the current harvest. Question 4: Draw the demand curve and the short-run supply curve for the market. Shade in the area that is the consumer surplus and the producer surplus. Explain why there is now a producer surplus in the graph. (5 Points) Question 5: As before, suppose that there are a very large number of foreign producers in the Philippines who can also produce bananas. In the absence of the import ban, it would be possible to purchase bananas from the Philippines at a price of $2.00. Suppose that the government announces that it will be liing the import ban for the current harvest season. Draw the supply and demand system for the current harvest with international trade. Why do we observe domestic production in this harvest? What will happen alter the clment harvest if the import ban continues to be lied. (5 Points) Part 3: Since the introduction of the import ban, there have been two serious cyclones that have devastated the banana crop in Australia. In the rest of this problem, we are interested in understanding how the existence of cyclones changes the incentives of domestic suppliers to produce. You should continue to assume that the Australian government bans the import of all bananas and that no other banana producers can enter the market and sell between the planting decision and the harvest decision. You may also assume that all farmers are risk neutral and are maximizing their expected profit. Question 6: Suppose that in a given year, 110 farmers have chosen to plant bananas and each one has chosen to plant 12,500 kilograms. Prior to the harvest occurring, a hurricane occurs that wipes out the crop of 55 farmers. Draw the resulting supply and demand graphs. What is the new equilibrium price? What is the producer surplus of a farmer who is not affected by the typhoon? What is the producer surplus of a farmer who is affected by the typhoon? (4 points) Question 7: Suppose that a typhoon occurs each year with probability 1/12 and that a typhoon will destroy bananas from exactly half of the farmers who choose to plant in a particular year. Calculate the expected prot of each farmer (including the planting costs) if exactly 110 farmers enter the market, and each chooses to plant 12,500 kilograms of bananas. Explain why you wold expect additional farmers to enter into the market when typhoons are possible. Discuss what this implies for equilibrium prices in years where a typhoon does not occur. (4 points) Question 8: Continue to assume that a typhoon occurs each year with probability 1/12 and that a typhoon will destroy bananas from exactly half of the farmers who choose to plant in a particular year. Further suppose that Australian farmers have the option of exporting bananas to the world at a price of $2.00. Assume that 116 farmers choose to plant in a given season and each farmer produces exactly 12,500 kilograms of bananas. Draw the supply and demand system for the case where a cyclone does not occur. How many bananas will Australia export in this case? Draw the supply and demand system for the case where a cyclone does occur. Calculate the surplus of each farmer (aer planting) and show that it is exactly equal to the planting costs. (10 points) Part 4: In the article \"Economist under re for banana import suggestion" there is a discussion between Saul Eslake and the Australian Growers industry regarding the importation of bananas in years where a cyclone occurs. Saul argues that Australian consumers could be made better off by allowing imports to occur aer cyclones. He writes \"Words such as 'greedy', 'grasping' or 'price- gouging', routinely applied to banks, oil companies and airlines, pass nary a lip when it comes to growers... I suppose the difference reects the fact that when it comes to fruit and vegetables, we are talking about 'our' farmers, who have been 'doing it tough' through drought and now tempest - as opposed to someone else's big, protable corporations, run by highly paid suits - so that we don't begrudge them the occasional opportunity to indulge in a spot of 'price-gouging'." The ABGC counters with an argument about biosecurity and the makes the following economic argument: \"What Mr. Eslake does not realise is that banana prices are determined by the 'ee market of supply and deman \" Question 9: Continue to assume that the probability of a cyclone in a year is 1/12 and that a cyclone will destroy exactly half of the total amount of domestic bananas produced and that all farmers who enter will grow exactly 12,500 kg of bananas. Using your knowledge from Questions [-8 briey, explain what will happen if the Australian government commits to the following policy prior to planting: Aer each harvest, the government will count the total number of bananas harvested by Australian producers. o If the total is above 1,275,000, the government will not allow any imports o If the total is below 1,275,000, the government will grant quotas so that the total amount supplied to the market is exactly 1,275,000. In explaining your answer, be sure to describe: 1. What happens to the prices of bananas in years with a typhoon and in years without the typhoon? 2. The total change in the consumer surplus in years with a typhoon and in years without a typhoon, 3, The total number of bananas planted in each yearl 41 The overall impact of welfare for Australian banana growers. Based on your analysis, would total welfare (consumer + producer surplus) be better off if we could guarantee that there were no bioseeurity risks and imports were allowed? (10 points)
