micro economics· Topics Assessed: 1. Demand and Supply 2. Elasticities 3. Efficiency and The...

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micro economics· Topics Assessed: 1. Demand and Supply 2. Elasticities 3. Efficiency and The Incidence of Tax  Framework for each answer: 1. Identify the key issue in the questions provided. 2. Analyse these key mentioned in the case study, within the context of the concepts    discussed in the lectures and textbook. 3. Use the appropriate economic model to illustrate the key issues graphically. Fully label the model and clearly indicate where changes occur. 4. Explain the model and discuss the outcome. 5. Provide the list of references used in answering the questions. · Topics Assessed: 1. Demand and Supply 2. Elasticities 3. Efficiency and The Incidence of Tax  Framework for each answer: 1. Identify the key issue in the questions provided. 2. Analyse these key mentioned in the case study, within the context of the concepts    discussed in the lectures and textbook. 3. Use the appropriate economic model to illustrate the key issues graphically. Fully label the model and clearly indicate where changes occur. 4. Explain the model and discuss the outcome. 5. Provide the list of references used in answering the questions. Word count: 1000 Submit assignment in Word file Deadline 19th September 2019  Topics Assessed: 1. Demand and Supply 2. Elasticities 3. Efficiency and The Incidence of Tax  Framework for each answer: 1. Identify the key issue in the questions provided. 2. Analyse these key mentioned in the case study, within the context of the concepts    discussed in the lectures and textbook. 3. Use the appropriate economic model to illustrate the key issues graphically. Fully label the model and clearly indicate where changes occur. 4. Explain the model and discuss the outcome. 5. Provide the list of references used in answering the questions. Rotting teeth and fatty organs turn Australians sour on sugar  The Sydney Morning Herald  By Rebecca Keenan  May 15, 2019  Australians are turning sour on sugar.  Consumption has been flatlining, and appetite for the sweet stuff probably won't grow much at all medium term as people shift to low sugar, diet and sugar-free options, said Charles Clack, a Rabobank analyst in Sydney.  Some state governments have been trying to discourage consumption by displaying graphic images of rotting teeth and fatty organs on buses and billboards.  "Health is a large factor behind this trend, offsetting the positive influence of stable domestic population growth," said Clack.  Australia isn't the only place where people appear to be wary of over-indulging in sugar. Demand in the European Union has hardly changed in recent years, and several countries have imposed taxes on sugar consumption, including the UK and South Africa.  Coconut sugar, kombucha  For Daniel Jackson, 40, who started a food supplies business seven years ago with two small delivery trucks in Perth, Western Australia, the change in sentiment has been a boon. He's moved to a warehouse five times the size and doubled his fleet as demand for alternative products booms.  He sells 100 kilograms a week of coconut sugar, a substitute for the mainstream version, and about 2000 cartons of sugar-free kombucha drinks, up from nothing two years ago.  "I never intended to build a health food product business, but that's where it's ended up," said Jackson, of Artisan Foods.  QUESTIONS  Q1 (a). Using the demand and supply model, explain and illustrate graphically the effect of some Australian State government action on the sugar market.  In your answer make sure you discuss the equilibrating process, and clearly outline the factors affecting demand and its impact on price and quantity. (5 Marks)  Q1 (b). Using the demand and supply model, explain and illustrate graphically, how these government actions will affect the market for coconut sugar. In your answer, make sure you clearly discuss the effect on price and quantity. (4 marks)  Q2 (a). Use the determinants of price elasticity of demand to analyse whether the demand for Kombucha in health food industry is likely to be price elastic or inelastic. (3 marks)  Q2 (b). Based on your analysis in Q2 (a) explain and illustrate graphically what will happen to the total revenue of the Kombucha industry following a change in the market trend. (4 marks)  Q3. Assume that Australian government has imposed tax on sugar. Discuss how tax creates inefficiency in the market. Further, assuming demand for sugar is elastic explain and illustrate graphically how the burden of tax will be shared between consumers and producers.  In your answer, refer to the concepts of consumer and producer surplus. (7 marks)  Your assignment will also be assessed on how effectively you can communicate with the reader, i.e. how well you have presented your arguments and ensured your analysis is logical and consistent. In addition, 2 marks will be awarded for correct grammar, referencing and formatting. Importantly, make sure you use appropriate diagrams in your analysis. 	Assessment feedback 	Principles of Economics (ECO 11) Assignment 2: Article Analysis (25%)  	Component 	Marks 	100-75% - (HD to D) 	75-65% (C) 	65 -50 (P1 to P2)

Dr. Smita · Accepted Answer

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Answer 1(a) Australian government has been trying to discourage the consumption of sugar so as to keep the citizens of the country healthy. They have been involved in non financial of displaying pictures of rotten teeth and fatty lever so as to increase the awareness amongst the people. They are pursuing people to change their taste, preferences and habits of sugar consumption.
In the graphical representation given above, 
X- Axis measures Quantity of Sugar and Y-axis measures Price of Sugar.
DD is the initial demand curve and SS is the supply curve.
E1 is the initial equilibrium and Q1 is the initial equilibrium quantity at the initial equilibrium price of P1.
The Australian Government has discouraged the consumption of sugar. Owing to which there is a shift in the demand curve.
The demand curve shifts when the demand for a product changes because of the factors other than the price.
In the given case, the consumption habit has changed and people are demanding less of sugar with no change in the price.
D1D1 is the new demand curve which is on the left downward side of the initial demand curve. A shift in the demand curve and the supply curve remaining same, E2 is the new equilibrium on the supply curve. P1 is the new equilibrium price which is lower than P2 and Q2 is the new level of quantity demanded.
Answer 1(b) With the discouragement on the part of the Australian government to consume sugar, the consumption of sugar in the country will go down and the consumption of the healthy substitute goods like coconut sugar will increase. The same has been illustrated in the following graph: 
In the above graph, 
X- Axis measures Quantity of Coconut Sugar and Y-axis measures Price of Coconut Sugar.
DD is the initial demand curve and SS is the supply curve.
E1 is the initial equilibrium and Q1 is the initial equilibrium quantity at the initial equilibrium price of P1.
The Australian government has discouraged the consumption of the sugar, therefore, the consumption of healthy substitutes like coconut sugar would increase. 
There is a shift in the demand curve, when the quantity demanded changes because of the changes in the factors affecting demand other than the price.
The increase in the demand for the coconut sugar is because of the change in the preferences of the consumer. The consumer preference is moving towards the increased consumption of coconut sugar with price remaining same, the demand curve would shift rightwards implying higher demand.
D1D1 is the new demand curve. The new demand curve intersects the supply curve at E1 giving a new equilibrium with higher level of quantity demanded at Q2 and higher price at P2.
Answer 2(b) Determinants of Price Elasticity of Demand:
1. Nature of commodity: The demand is inelastic for the necessity goods. In the given case, kombucha has become the necessity goods because people are dependent on it for their daily consumption. Hence, the demand for the same will be inelastic.
2. Availability of substitutes: The healthy substitutes for sugar are very limited. The goods which have limited substitutes, their demand is inelastic.
3. Adjustment Time: The adjustment time refers to the time taken by the consumer to adjust their pattern of consumption. The Australian government is aggressive and they are taking up anti sugar consumption campaigns. Therefore, people have limited time to adjust; therefore this factor makes elasticity of demand for kombucha inelastic.
4. Importance of commodity in the consumer budget: Sugar consumption is a habitual and daily consumption thing. Hence, the people allot budget to it. This factor again calls for inelasticity of demand for kombucha.
Answer 2(b) Kombucha industry will see an increase in the total revenues owing to the anti sugar consumption campaign by the Australian Government. People are moving towards the consumption of healthy sugar substitutes as against the traditional sugar. 
The price elasticity of demand is inelastic, therefore a change in price would not affect the demand for the product and the total revenues for kombucha industry will increase owing to the increased demand for the product. 
An increase in the price of the product will lead to an increase in the total revenues of the kombucha industry in comparison to a fall in the price of the product which will lead to lesser decrease in the total revenues. Hence, all in all kombucha industry will be at an advantage because of inelastic demand.
Answer 3 Taxes and Market Inefficiency
Taxes are generally associated with market inefficiencies and loss of consumer and producer surplus and prevalence of dead weight losses. The imposition of tax would shift the supply curve upwards towards the left. 
The incidence of tax would lead to a loss of producer surplus as well as to a loss of consumer surplus. The tax incidence will be distributed amongst the producer as well as the consumer. There would be certain unaccountable losses in the economy, known as the dead weight loss.
Therefore, it can be stated that the imposition of the taxes lead to market inefficiency.
S is the initial supply curve and S + tax is the new supply curve post imposition of taxes. Therefore would be increase in price and hence a fall in the demand. The market dynamics would change giving rise to loss of surplus and unaccountable loss termed as dead weight loss.
References:
1. Markham, J.W.. (1965). Market Structure, Business Conduct, and Innovation. American Economic Review. 55. 323-332.
2. Varian, HR (1987). Intermediate Microeconomics: A Modern Approach, 5, Edition.

· Topics Assessed: 1. Demand and Supply 2. Elasticities 3. Efficiency and The Incidence of Tax Framework for each answer: 1. Identify the key issue in the questions provided. 2. Analyse these key...

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