Principles of Economics

QUESTION 1

a. Use a simple demand and supply model, and beginning from equilibrium, explain and illustrate why the price of beef meat fell during the drought, Be sure to explain your reasoning in economic terms.illustrate your answer using an appropriate diagram.

• Begin by defining a perfectly competitive beef market

b. On the same diagram used above, indicate how the COVID pandemic might have impacted on the price of beef. Be sure you explain the mechanism by which COVID affects the market. illustrate your answer using an appropriate diagram.

C. Consider the separate market for beef cattle. Explain why drought-breaking rains increased the price of cattle.illustrate your answer using an appropriate diagram.

• explaining the meaning of separate or related markets

QUESTION 2

a. Drawing on the determinants of price elasticity of demand, explain whether you think the demand for beef meat in Australia is elastic or inelastic.

• Define price elasticity for beef including a distinction between price elastic and inelastic
• Refer back to the determinants/influences of price elasticity of demand but relate to beef

b. Assuming the food supply chain was competitive during the drought and consistent with your conclusion in 2a , illustrate the effect of a fall in the price of beef meat on the total revenue of a beef farmer.

• Use the TR test to discuss the impact of the drought and the change in the TR of a beef farmers.
• Refer to the total revenue test and discuss
• make up numbers to support your argument. (make up the numbers)
• Use a graph to illustrate the change in the TR for the beef farmers.

QUESTION 3

a. If the government decides to impose a goods and services tax (GST) equal to 10c per kilo on beef, explain, consistent with your earlier determination about elasticity,who is likely to carry the burden of the taxand illustrateyour answer using an appropriate diagram.

• Taking into consideration the price elasticity of demand, explain the incidence of sales tax.
• Who will bear the larger burden of sales tax?
• Use a graph to illustrate and possibly use numbers to explain the burden of tax
• Graph: you an either use Pc, Ps or you can put actual numbers to by making it up.