Q1. ( a ) The cost of parking might include existent estate costs, electricity costs, watchers costs etc. These costs would n’t diminish by autumn in monetary value of parking license. It ‘s merely a alteration in policy of campus to do parking available for more people. With this decrease, the institute might still do more net income if the figure of parking autos increased is offset by the lessening in parking license fee. This would of course depend on the monetary value snap of the demand for parking ; but the bottom-line is that alteration in monetary value of parking is more of a policy determination with no consequence on the cost of parking.
( B ) Drought in Australia has reduced the wheat end product and hence the wheat being exported to USA has been reduced. This deficit of wheat due to decrease in import has shifted the overall wheat supply curve of US towards left on the demand-supply graph and therefore leads to increase in monetary value. Thus the monetary value addition incentivizes the US husbandmans to bring forth more to bridge the demand-supply spread. Overall, this would profit the husbandmans of US and Australian husbandmans might lose some of their portion of income.
Q2. ( a ) ( I ) Monetary value on Y-Axis and Quantity ( demand ) on X-axis.
The addition in demand of java has shifted the Demand curve from D1 to D2. So even at same demand ( around 9 ) the monetary value has increased from 19 to 25 ( in short term ) .
In the long term the monetary value and measure would switch to a new equilibrium point i.e. the intersection point of the curve S & A ; D2. Although we might besides see an addition in the ‘supply ‘ due to higher border in java but that ‘s a different game wholly.
( two ) Monetary value on Y-Axis and Quantity ( demand ) on X-axis.
The deficit of bananas is a direct impact of the desolation caused to the agribusiness by the northern Queensland inundations. This leads to a leftward displacement of the Banana Supply curve ( S1 to S2 ) . This resulted in addition in Banana monetary values.
Q2 ( B ) The monetary value snap would non be same for a topographic point similar Perth as compared to Australian outback. This is because, there are assorted factors involved which affect the monetary value ; the important 1s here being as follows –
Luxury merchandises portion a high snap of demand
Besides goods which form a considerable portion of a consumers budget have higher snap as compared to other goods
Since, the demographics of the two topographic points are different hence ; there will be difference in the monetary value snap of demand for calls made from nomadic phones in two parts.
Q3. ( a ) ( I ) Calculating Peter ‘s fringy benefit from ice-cream as shown below –
Liters of ice-cream
Willingness to pay
Fringy benefit
0
$ 0
1
$ 10
$ 10
2
$ 17
$ 7
3
$ 22
$ 5
4
$ 25
$ 3
5
$ 27
$ 2
6
$ 28
$ 1
( two )
The demand tabular array for Peter is as follows:
Monetary value
Demand
4.67
6
5.40
5
6.25
4
7.33
3
8.50
2
10.00
1
Monetary value on Y-axis ( dollars ) ; Quantity on X-axis ( liters ) .
( three )
Now at $ 5 per liter of ice-cream, Peter would purchase approx. 5 liters of ice-cream.
Q3. ( B ) In a market, there is a demand and a supply curve defined for every good/service. The supply curve defines the monetary value a manufacturer is willing to accept for a given sum of good/service to be provided. The demand curve shows the willingness of the consumer to purchase a good/service at a given monetary value. The intersection between the Demand and Supply curve is known as the equlibrium point and it defines the equilibrium measure and equilibrium monetary value.
Producer Surplus is basically the difference between the equilibrium monetary value defined by the market and the lowest monetary value the manufacturer is willing to accept for its goods. The greater the difference between the two monetary values, larger is the manufacturer excess.
surplus2
As can be seen from above, the country above the supply curve i.e. the violet line, below the equilibrium monetary value and left to the intersection point is known as the Producer Surplus.
Example: Suppose the Demand and Supply curves are as follows:
D = 32 – 4P
S = 3P – 5
The graph for the same would be as shown below –
Surplus_correct
Blue shaded portion represents the consumer excess ; whereas the Grey shaded portion represents the manufacturer excess for the given set of equations.
Now, the equilibrium monetary value is at D = S.
i.e. 32 – 4P = 3P – 5
i??P ~ $ 5.29 & A ; i??Q ~ 10
Now, the lowest value the manufacturer is willing to hold to be $ 1.67 ; nevertheless the manufacturer is having $ 5.29. The difference in these sums creates the Producer Surplus.
Q4. ( a ) Deadweight Loss – It ‘s the inefficiency caused by some action, such as revenue enhancement, monetary value controls etc, which leads to market deformation and finally a net loss in societal public assistance. The loss is really due to the minutess which could hold taken topographic point but were prevented by the market deformation.
Taking the illustration from old inquiry and enforcing a revenue enhancement on goods, would take to a loss of consumer excess and manufacturer excess. This loss would really dwell of Government Revenue from the revenue enhancement and the deadweight loss.
deadweight loss
In the graph above, the countries shaded in the undermentioned colourss are –
Blue i? Consumer Surplus
Yellow i? Government Revenue from revenue enhancement
Purple i? Deadweight loss
Red i? Producer Surplus
Now as evident from the graph, the revenue enhancements has the undermentioned consequence on the market – the effectual monetary value received by providers lessenings and the monetary value being paid by clients additions. This discourages the happening of dealing of the good/service in the market. Hence, in greater involvement of society the authorities is more likely to enforce revenue enhancement on intoxicant as compared to luxury autos.
Q4 ( B ) Now, here the Price of a merchandise is equal to the Average Variable Cost. The monetary value is decided at this value as fixed cost is really a sunk cost and hence it is non taken up in the computation of merchandise pricing. So at equilibrium, the houses are basically selling at the norm variable cost and merely able to cover up their costs and holding zero net incomes.
Since, the fixed costs are non taken in computation and all the houses are about on zero border net incomes, therefore the loss they are bearing is really the fixed cost itself.
net income
In short tally, it ‘s possible that some houses may do some economic net income as shown in figure above. But in the long tally, this net income is non sustainable. The houses finally would be doing merely some normal net income but zero economic net income, as apparent in graph where the demand curve is digressive to the mean cost curve.
300px-Economics_Perfect_competition
Case Study
Introduction
Sugar Industry is one of the closest idols of perfect competition in the existent universe. With countless manufacturers of sugars across the markets and with about negligible range of distinction between the merchandises, the sugar industry is basically a price-taker.
Concept: Perfect Competition
As we know, in perfect competition the houses make no net income as they hardly cover their variable costs. In the long run the houses end up doing losingss ( economic loss ) which is equal to the Fixed Costs of the house. The graph below besides exhibits the same construct. We can see that the demand of sugar is determined from the first graph ( Demand-Supply graph for the sugar industry ) by comparing Sindustry to Dindustry. The demand calculated from here is so carried over to the following graph ( Demand-Supply graph for an single house ) where Demand is equal to the Marginal Revenue or Average Gross or Monetary value of sugar. The demand, as we see from 2nd graph is absolutely elastic and any addition in monetary value by the house would ensue in loss of market portion for that house. Now, the equilibrium measure for the house would be decided on the footing of MR=MC attack, as this would take to gain maximization. Now at the equilibrium measure calculated the Price for the trade good is less than its Average Entire Cost. This is where we see that efficaciously the house is doing economic losingss. Another illustration for such industry can be the low cost air hoses industry in India.
perfect competition
Figure – hypertext transfer protocol: //welkerswikinomics.com/
One thing to be observed here is that the state of affairs is non ever like this, otherwise there would be no inducement for a participant to come in the market. In the short tally, some houses do do normal net incomes and some even supranormal net incomes ; but it all depends on the place of the short-run cost curve. As show in the below graph, this house has short tally cost curve such that the market monetary value prevalent is more than its cost. However, in the long tally all these factors normalize and all houses are at the same base.
net income
Canegrowers: As an association
In a perfect competition, all the manufacturers are ever low on borders and confronting a stiff competition. So, it does n’t makes concern sense for an single organisation to use money on increasing gross revenues ; as there is no warrant of accomplishing any material gross growing given the big figure of providers and purchasers. Furthermore the information being free and symmetrical would ne’er allow the provider charge any sum higher than the market monetary value. Hence, in such a scenario it ‘s in the best involvements of all the providers to pool their cognition & A ; resources and work out on the procedure of maximising their returns by cut downing their costs. This leads to set uping of industry associations, which is designed to work in the best involvements of the industry. Canrgrowers is one such association of sugar cane providers which works for the sugar industry and purposes at prolonging the profitableness of the manufacturers and prolonging the sugar industry as a whole.
Canegrowers: As a undertaking force
The Canegrowers as an association is responsible for the development of techniques which help the sugar manufacturers in acquiring the maximal return out of their harvests. These techniques are a portion of the ‘quality confidence ‘ activities they undertake on the behalf of manufacturers as a whole. As described in the picture, the techniques used are polar engineering and new-infrared Spectrophotragpy. These techniques are used extensively to mensurate the sugar content in the sugar cane juice ( utilizing assorted pre-calibrated parametric quantities ) and heighten the end product of the manufacturers. Besides any drosss in the juice are washed off guaranting that the sugar itself is non wasted in the procedure.
This manner non merely would they break the quality of sugar they produce, they would besides increase the sum of sugar produced. By developing new and improved ways of taking drosss, Canegrowers is assisting the industry in take downing their variable costs and increasing their borders.
Sugar Industry Elasticity
The snap of a merchandise depends on several factors. Let ‘s first enlist the major factors that contribute to the snap of the merchandise –
Handiness of Substitutes
Sum of Income allocated to pass on the trade good
Necessity of the merchandise
Time Span
Now, we will analyse these factors with regard to saccharify industry and seek to estimate the snap of sugar industry.
Handiness of Substitutes: This alone is one of the major factors of snap and it reasonably much defines the destiny of a trade good. Taking sugar as a merchandise we find that sugar has high snap as there are replacements available for sugar such as jagghery. So if the monetary value of sugar goes up ( ceteris paribus ) so people would be given to switch towards jagghery to fulfill their demand for sweet inducing trade good. Besides, there are some unreal sweetenings available in market which can to an extent act as a sugar replacement. Whereas, if the monetary value of sugar cane itself goes up so there would likely be small alteration in the ingestion of sugar or jagghery. This is because there are no existent replacements for sugar cane and people might non be ready to give up their sweet demands. So, we see that a merchandise within an industry might be elastic but the industry as a whole itself is non elastic.
Sum of Income allocated – Sugar being a day-to-day ingestion merchandise would hold a monthly budget allocated to it. With
Necessity of merchandise – Although this would depend on the demographics of the part but speaking in general the necessity of Sweet ca n’t be done off with and hence at that place would ever be demand for this merchandise.
Time Span – Longer is the monetary value alteration for a merchandise, higher the snap would be for it. For illustration for one time you may purchase sugar at high monetary value but if you see a lasting alteration in the monetary value for sugar so you might finally switch to jagghery.
Hence, the construct of snap of demand is a really utile construct in understanding the demand for sugar in the short tally every bit good as long tally.
Sugar Industry – Factors impacting Supply & A ; Demand
Sugarcane turning is a long procedure ( taking 1.5 to 2 old ages from seting to reaping ) ; so depending on the conditions and besides dependent on many natural jeopardies such as inundations, tornados etc. and the impacts of plagues and diseases. This type of disconnected alterations can earnestly change the supply of sugar and therefore the monetary value of sugar in market ( particularly international market ) fluctuates really often.
Talking about international market, there are two major factors that influence the monetary value –
International trade is a really little proportion of entire production and ingestion of universe
Protection policies adopted by some European states, US, Japan etc.
To cut down the uncertainness of monetary values, sugar hereafters and options are readily traded in derived functions market and major ball of the trade good is sold through these contracts merely. This reduces variableness in the ‘spot ‘ monetary values of the sugar in market. Besides, single manufacturers are shielded from this monetary value fluctuation by come ining into long-run contracts to sell a important proportion of their end product. ( “ The Australian Sugar Industry ” , Industry Commission, 1992 )
The factor to be considered from supplier side while make up one’s minding for the equilibrium monetary value and measure is chiefly the cost of production of sugar. Apart from that, the engineering developed to increase the end product and other logistics costs, organize the major ball. After that it depends on the interactions between providers and purchasers to make up one’s mind upon the equilibrium monetary value and measure. Since, the manufacturers are price-takers hence merely some houses ca n’t act upon the monetary value of the sugar in market. Besides since the demand at steadfast degree is absolutely elastic hence any addition in monetary value by one provider would take to zero measure sold for that purchaser. Talking at an industry degree, the demand for sugar is about inelastic and the one time the equilibrium monetary value is reached after that no single house can demand more than that monetary value ( as shown in graph above ) .
Australian Sugar Industry
In Australia, the major parts where sugar is cultivated are New South Wales, Queensland and Western Australia. It ‘s cultivated majorly in the high-rainfall coastal countries or river vales of these parts. This industry is one of the most of import rural industries of Australia, with the entire size of $ 1.5 – $ 2.5 billion. ( www.cranegrowers.com )
The statistics for the industry are –
Cane production = 32 – 35 metric ton
Raw Sugar = 4.5 – 5 metric ton
Number of Cane Farm Businesses = 4000
Number of Sugar Mills = 25
Value of Production = $ 1.5 billion to $ 2.5 billion
Australia is one of the largest exporters of natural sugar with 80 % of the natural sugar produced being exported to Asia & A ; US.
The sugar market of Australia is like any other planetary sugar market construction i.e. it ‘s close to perfect competition. Due to hapless production techniques and profitableness the industry saw a diminution in mid 2000 ‘s.
Industry Structure
The industry has broad web of assorted types of organisations. This web is basically meant to back up the industry in countries like R & A ; D, selling, substructure development etc. These organisations can be divided into peak organic structures, authorities bureaus, research and development establishments and grain selling organisations ( www.anra.gov.au ) . The organisations are –
Peak Bodies –
Australian Cane Farmers Federation
Cane Agriculturists
NSW Cane Growers Association
Ord River Canegrowers Association
Cane Harvestors
Glenn millers
Rural Industries Research and Development Corporation
Government organic structures –
Commonwealth Scientific and Industrial Research Organisation
Department of Agriculture, Fisheries and Forestry
Australian Quarantine and Inspection Service
Australian Bureau of Agricultural and Resource Economics
Bureau of Rural Sciences
Research and Development Institutes –
Bovine spongiform encephalitis
Sugar Research and Development Corporation ( SRDC )
Concerted Research Centre for Sustainable Sugar Production
Environmental Challenges faced by the Industry
The major environmental challenges faced by Australian Sugar Industry are –
Irrigation and Drain
Soil Management
Dangerous goods and chemicals ( licencing for fuel storage in surplus of 10000 L )
Fertilizer Management
Herbicide Management
Waste Management
Ecology and Conversation
Current Situation of the Industry
The Australian sugar industry is now under the recovery stage after it saw a diminution in net incomes and production for the last 4-5 old ages. A turnaround in the sugar cane plantation and sugar production is expected in 2010/11. This is expected majorly because of the lifting sugar monetary values worldwide and improved seasonal conditions for sugar cane plantation. ABARE reported sugar cane monetary values for 2009/10 to be around AUD 509/MT, which was around 52 % higher than old twelvemonth. It is expected to travel even higher in 2010/11. Below are a twosome of graphs which depict the industry scenario as of now.
Source – ABARE Data
The figure below shows the diminution of country under plantation of sugar cane over the old ages. The 2010/11 figure is the expected country to be covered, and if it happens so this would be the individual largest per centum addition in the sugar cane plantation country in a decennary.
Source – ABARE Data
