Read the news article entitled "Cattle prices have surged throughout 2020 but analysts say its peak is nearing" by Clint Jasper and answer the following questions. Specify any assumptions you have made and use clear, concise and coherent arguments.

Extracted from: Cattle prices have surged throughout 2020 but analysts say its peak is nearing

ABC Rural /by national rural reporterClint JasperforThe Business;2July2020at8:31am

Despite nationwide lockdowns and a slide into recession, Australia's east coast cattle market has been surging throughout this year. Beef producers have been clamouring to restock their previously drought-parched propertiesafter solid rainfall, driving saleyard prices to record highs. And, after anepic sell downof Australia's cattle herd during the drought, farmers, feedlots and abattoirs are all competing for the smallest cattle herd in 30 years.

Australia is now home to some of the world's most expensive cattle. Pregnant cows, worth $1,200 a head in northern New South Wales three years ago now have a $2,000 price tag, while heifers have gone from $350 a head to $800 in three years. This has all occurred as theglobal economy slides into a pandemic-induced recession, and analysts are predicting the booming cattle market won't be able to stay detached from the global downturn for long.

Around 70 per cent of Australia's beef is exported, and half of that goes into the food service industry. Rising unemployment in Australia's key overseas beef markets, South Korea, Japan, China and the US are a concerning sign for the premium beef Australia sells. "The question is what happens when the stimulus packages run out and what will that do to consumer demand," Mr Quilty said.

"We're already seeing in parts of North America consumers starting to switch across to cheaper meats, in alternative to the more expensive meats like beef." Chinaslapped an export banon four Australian meat processors in May, but by April exports to China were down by 21 per cent compared to 2019.

NAB agribusiness economist Phin Ziebell said Australian cattle prices, and those of our key competitors could not continue travelling in opposite directions. "Prices will fall when restocked interest recedes," he said.

This year's rainfall, and the forecast of more to come, has seen optimism surge into nearly all corners of the cattle market. Beef producer Maria Jackson sold all but 30 of her cattle during the drought, and her husband has worked interstate for six months to help pay the bills. With green pastures across her property, near Tamworth NSW, she is actively restocking. In two year's time, Ms Jackson hopes to have calves hitting the ground, and plans to purchase an additional bull to help get the job done.

Demand for bulls is also surging, 1,300 kilometres to the south, in Victoria's Gippsland, Angus stud breeder Anne Marie Barrow has already sold out.. "We could actually sell double the amount of bulls we had offered", Ms Barrow said. "We're very busy fielding enquiries, not just from existing clients, but from people who've found us on the web, or word of mouth or a neighbour has one of our bulls. "So they're in the market looking, but we just don't have the product to offer them."

Questions:

1a.Use a simple demand and supply model, and beginning from equilibrium, explain and illustrate why the price of beef meet fell during the drought, Be sure to explain your reasoning in economic terms

1bOn 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.

1cConsider the separate market for beef cattle. Explain why drought-breaking rains increased the price of cattle.

2a.Drawing on the determinants of price elasticity of demand, explain whether you think the demand for beef meat in Australia is elastic or inelastic. (Note: It is more important that you explain your reasoning than you have the 'correct' answer).

2bAssuming the food supply chain was competitive during the drought and consistent with your conclusion in2a , illustrate the effect of a fall in the price of beef meat on the total revenue of a beef farmer.

3a.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 illustrate your answer using an appropriate diagram.

3bSuggest why some economists may argue against the introduction of a GST on food.