Question C1 (15% of total marks)

a) (5 marks) 'Jet fuel consumption remains the hardest hit section of the global oil market as passengers avoid air travel as a result of the pandemic and government travel restrictions. The specific problems of the jet market explain why the price of jet fuel is being hit much harder than the price of standard oil' (John Kemp, 'Oil market rebound hinges on return of international flights', The Age, 22/9/2020, pp.2425):

i) Use the demand/supply model to explain how the larger decrease in the price of jet fuel than in the price of standard oil could be explained by different sizes of decrease in demand. Is your explanation consistent with information in the newspaper article excerpt above?

ii) Can you think of another possible explanation - using the demand/supply model for why there has been a larger decrease in the price of jet fuel than standard oil?

b) (5 marks) 'Consumers are being warned of price hikes for fresh food if farmers cannot secure more workers to pick their fruit and vegetables...National Farmers' Federation chief executive Tony Mahar said...'We know that some farmers are planning to decrease the size of their next crop...'' (David Crowe, 'Farmers fear price hikes amid slavery attack', The Age, 1/10/20, p.17):

i) Use the demand/supply model to explain why a shortage of workers to pick agricultural crops could cause an increase in prices of fruit and vegetables?

ii) Is there a type of government policy that could be used to increase the supply of workers to pick fruit and vegetables? Explain briefly how the policy would have that effect.

c) (5 marks) 'CocaCola Amatil fears its secret bottled water source in the NSW Southern Highlands is under threat from a major sand mine proposed for neighbouring land. The beverages giant - which manufactures popular brands Mount Franklin and Pump - is alarmed at the quarry's potential to pollute its pristine water source...' (Carrie Fellner, 'CocaCola fears mine to spoil water source', The Age, 28/9/20, p.14):

i) What is market failure?

ii) What type of market failure is described in the excerpt from the article above? iii) What would be the consequences of that market failure?

iv) Can you suggest a policy that the government could use to remedy the market failure? Briefly explain how the policy would work.