Sugarcane production

initial instructions
>>>>>>>> • For the essay question, write an introduction to say what you
>>>>>>>> will
>>>>>>>> discuss and a conclusion which sums up the discussion and clearly
>>>>>>>> shows
>>>>>>>> answers to all parts of the question. Remember, before you start
>>>>>>>> writing,
>>>>>>>> break the question into its parts so that you understand everything
>>>>>>>> you
>>>>>>>> have to do.
>>>>>>>> • For the short answer questions, do not include an introduction or
>>>>>>>> conclusion. Just answer the question.
>>>>>>>> • Edit your work. Do not repeat information except to summarise at
>>>>>>>> the end. It is good practice for you to write in a way that
>>>>>>>> provides
>>>>>>>> maximum information in a minimum of space. This is what you are
>>>>>>>> expected to
>>>>>>>> do in the exam, though you won’t have to use references. Remember,
>>>>>>>> the
>>>>>>>> extended response section of the final exam comprises 20 per cent of
>>>>>>>> your
>>>>>>>> total mark for this course and some students just do not write
>>>>>>>> enough solid
>>>>>>>> and relevant material.
>>>>>>>> • Use appropriate assumptions where required. These may help you to
>>>>>>>> simplify any complexity. Selecting appropriate assumptions in
>>>>>>>> economics is
>>>>>>>> considered as a way of making an economic analysis (often called a
>>>>>>>> model)
>>>>>>>> simpler without affecting any of its important conclusions.
>>>>>>>> • Use relevant diagrams wherever possible (for all questions).
>>>>>>>> These
>>>>>>>> are the conventional way in which things are discussed in economics.
>>>>>>>> Fully
>>>>>>>> label diagrams, shift parts of the diagrams to illustrate key points
>>>>>>>> and
>>>>>>>> then explain what is occurring.
>>>>>>>> • Use the textbook to get started. Do some extra reading, from
>>>>>>>> other
>>>>>>>> introductory texts, the Web, newspapers or journals to expand on
>>>>>>>> the
>>>>>>>> initial reading. Your answer for question 4 should contain at least
>>>>>>>> six
>>>>>>>> different relevant references including at least one journal
>>>>>>>> article.
>>>>>>>> Reference the textbook when you use it for information.
>>>>>>>>
>>>>>>>>
>>>>>>>> Assignment questions
>>>>>>>> The assignment consists of three short answer questions (20 marks
>>>>>>>> total) and one essay question (20 marks).
>>>>>>>>
>>>>>>>> Short answer questions (references not needed)
>>>>>>>>
>>>>>>>> Question 1 (4 marks)
>>>>>>>> Suppose a severe drought hits the sugarcane crop. Using a supply
>>>>>>>> and
>>>>>>>> demand model explain how this will affect the equilibrium price and
>>>>>>>> quantity in the market for sugar and the market for honey.
>>>>>>>>
>>>>>>>>
>>>>>>>>
>>>>>>>>
>>>>>>>> Question 2 (8 marks)
>>>>>>>> (a). Complete the following table of costs for the Pizza Company.
>>>>>>>> (3
>>>>>>>> marks)
>>>>>>>> (b). Draw the total cost curve on one graph. On another graph, draw
>>>>>>>> the marginal cost, average total cost and average variable cost
>>>>>>>> curves. (3
>>>>>>>> marks)
>>>>>>>> (c). Are there output levels that exhibit increasing returns to
>>>>>>>> scale? (1 marks)
>>>>>>>> (d). Are there output levels that display decreasing returns to
>>>>>>>> scale? (1 marks)
>>>>>>>> Pizzas Fixed costs Variable costs Total costs Marginal costs
>>>>>>>> Average
>>>>>>>> total costs Average variable costs
>>>>>>>> 0 $1000 $—–
>>>>>>>> 200 $1000 $360
>>>>>>>> 400 $1000 $840
>>>>>>>> 600 $1000 $1440
>>>>>>>> 800 $1000 $2160
>>>>>>>> 1000 $1000 $3000
>>>>>>>> 1200 $1000 $3960
>>>>>>>> 1400 $1000 $5040
>>>>>>>> 1600 $1000 $6240
>>>>>>>> 1800 $1000 $7560
>>>>>>>> 2000 $1000 $9000
>>>>>>>>
>>>>>>>> Question 3 (8 marks)
>>>>>>>> (a). What will happen to the bakery if a large retailer like Coles
>>>>>>>> or Woolworths establishes a new store in a location close by and
>>>>>>>> decides to
>>>>>>>> price bread below cost as an opening special to attract customers?
>>>>>>>> What
>>>>>>>> will happen to the bakery if the new retailer continues this
>>>>>>>> pricing
>>>>>>>> behaviour for, say, one year? (4 marks)
>>>>>>>>
>>>>>>>> (b). How should a monopoly choose its quantity of production to
>>>>>>>> maximise profits? Explain why producing either less or more than the
>>>>>>>> level
>>>>>>>> of output at which marginal revenue equals marginal cost will
>>>>>>>> reduce
>>>>>>>> profits. Since a monopolist does not fear competition, what prevents
>>>>>>>> it
>>>>>>>> from raising its price as high as it wishes to make higher profits?
>>>>>>>> (4
>>>>>>>> marks)
>>>>>>>>
>>>>>>>> Question 4 (20 marks) (references needed)
>>>>>>>> A government implements heavy taxes on sugar-sweetened beverages
>>>>>>>> (sugary drinks), as part of a comprehensive approach to decreasing
>>>>>>>> overweight and obesity. You are required to write an essay to
>>>>>>>> discuss this
>>>>>>>> issue. Make sure that you clearly address the following questions in
>>>>>>>> your
>>>>>>>> analysis:
>>>>>>>> 1) Using the supply and demand model explain why a tax can reduce
>>>>>>>> the sales of sugar-sweetened beverages.
>>>>>>>> 2) Explain whether the demand for sugar-sweetened beverages is
>>>>>>>> elastic or inelastic.
>>>>>>>> 3) Explain if an alternative policy such as a price floor policy
>>>>>>>> (or
>>>>>>>> any other policy) works in reducing the sales of sugar-sweetened
>>>>>>>> beverages.
>>>>>>>> 4) Critically evaluate or predict the effectiveness of the
>>>>>>>> sugar-sweetened beverage tax as a policy in reducing the number of
>>>>>>>> people
>>>>>>>> drinking sugar-sweetened beverages.

Question 1 (4 marks)
suppose a severe drought hits the sugarcane crop. Using a supply and demand model explain how this will affect the equilibrium price and quantity in the market for sugar and the market for honey.

Supply-Demand curve for Sugar
Drought will cause a decline in the supply of sugar leading to a shift in the supply curve from S_o to S₁.since production of sugar is affected by drought the amount produced will decrease and the cost of production rises. The decline will cause a deficit in the market where supply will be less than demand hence the shift in demand curve from D_o to D₁ indicating an increase in demand. Eventually prices of sugar will increase from P₀to P₁ mainly because of the increase in cost of production.
Demand-Supply curve for honey

Increase in the price for sugar will lead to consumers looking for alternative substitutes such as honey. The shift in the demand curve for honey from D₀ to D₁ indicates a rise in quantity demanded for honey. The prices will also increase from P_o to P₁ due to the increase in demand. Supply remaining constant equilibrium quantity of honey demanded will increase hence causing the shift in the demand curve.

Answer preview:

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