QUESTION 1: 20 marks; Word Limit: 400 words

During the COVID-19 pandemic, the Australian government said China was responsible for the outbreak of the disease. The Chinese government was offended and decided to reduce the quantity of coal China imported from Australia. This resulted in shortage of coal, needed to run energy power plants. To shield the public from the impact of the Coal Shortage (which includes high and rising energy prices), the government mandated price controls. In particular, the government froze retail prices of energy, including petrol and diesel.

a. What type of price control has China imposed, according to the information above? [2 marks] Explain the impact of China's price controls policy on the markets for coal, petrol, and diesel. Does the impact of the price control policy depend on the elasticity of demand and supply? Illustrate your answer with the demand and supply diagram. [5 marks]

b. Explain how China's price controls have changed consumer surplus, producer surplus, total surplus, and the deadweight loss in the markets for coal, petrol, and diesel. [8 marks]

c. Is the outcome of China's price control policy fair and efficient? Critically discuss. [5 marks]