Introduction to economics N assignment-ECO100 (1705712)

Answer 1

• Marginal Private benefit and marginal private cost (supply) of education in China are :

P = 100-0.1Q^D

P= 10+0.1Q^S

Market equilibrium quantity = 450

Market Equilibrium Price = 55

(b)

(Sourced: Kesicki and Ekins, P., 2012)

As referred form part A Market equilibrium quantity is 450 and quantity is 55.

(C)  When economist estimated the consumption of education generates a positive externality of unit $ 10

Social Optimum exists wherein P = MC and profit in increased. In this scenario, there is optimum distribution of resources in society considering into account of external costs and benefits. At the same time, social efficient exists wherein marginal social benefit equals to marginal social cost (Norman, 2014).

When consumption of education generates positive externalities it means social benefit and employed cost in field of education is equal and profit is also maximized in China. At the same time, dead weight loss is bad for society as employs the extra resources and created extra burden due to loss of benefit on consumers and government. it is also known as in efficient market mechanism.

Social Optimum cost

= MSC = MPC+MEC

= 100+10

=110

Deadweight Loss is as follows

= ½ (P2-P1)*(Q1-Q2)

= 55/45*450

= 550

(d) Governmental policies can improve the market outcome. At the same time, government can interfere in the market through its policies when it fails to allocate the resources efficiently. In this way, due to failure of the market, resources are not reached proficiently in the market.

The reason behind the market failure is that it is not able to allocate the resources in equitable way. In relation to this, government formulates the policies in order to bridge the gap in market in terms of demand and supply. These policies can be in respect to regulation, taxation and subsidies etc.

At the same time, government can also act for enhancing the general economic fairness and transparency in system (Achkasova, 2015). For an instance, it can formulate and implement the policies for eliminating the monopoly in the market and to remove the negative externalities.

Competitive market environment leads to inefficient results due to externalities, monopoly economy, and incomplete information in economy. Due to these causes, market prices either does not exists or do not show the actual value of what they priced.

On the other hand, government policies can impact the market by adjusting tax rates, managing the money, supply and controlling the credit (Dai and Xu, 2015). This can rapid the economy and slow as well.

In this way, it can affect the employment opportunities and level of prices. Thus, it can be stated that government could policies regarding taxes and monopoly in order to improve the market.

Answer 2

(a) Impact of the Drought and Bush Fires on the supply of Coffee

Drought and Bush fires badly impacted the supply in Brazil. At the same time, it has created the difficulty in crop supply and also, there is noticeable decline in coffee reduction.

In order to solve this problem, various researches are in progress to develop the crops that are more resistant to drought and bush fires (Ruiz Meza, 2015). At the same time, it is required to start produce the coffee in those tropical area wherein rainfall is more constant and less flat to drought.

On other hand, according to International Center for tropical Agriculture (CIAT) the drought damage the higher quality of Arabica bean leads to two third global coffee productions limited to Brazil and few other regions.

Arabica bean and Robusta bean are more hest resistant but less tolerant to major climate changes. Climate change affected these two species of coffee causes the loss of $500 million of annual damages.

From last five years Brazilian region only have the 10 percent rainfall however high heat that is harmful for coffee beans. Additionally, there is considerable decline in both kind of coffee production and supply.

Arabica production is comparatively 23.9 to 19.6% less in 2019 as comparison of previous year. Whereas, Robusta seems to grow in between from 14.36 to 16.33 Million bags due to not suffered from bad climate conditions.

Overall, the Brazilian coffee has been estimated to be decline in 2019 by 11.5 to 18% (Brito et al 2016).  However, despite of such significant supply decrease, Brazil will remain world’s largest producer.

(Sourced: Brito et al 2016)

(b)World equilibrium quantity and prices of coffee due to worldwide demand for coffee products increases.

In this case, wherein demand of coffee products increases in all over the world will lead to increase in prices of coffee products and demand will be decline subsequently. It happens due to price elasticity of demand states that changes in price causes to decrease in quantity demand that is negative in nature.

Generally, when demands are higher than quantity supplied then it increases the price of commodity (Jena et al 2012). At the same time, it affects the demand and supply of products later.

In case of coffee products, it is the most popular beverage in the world. The large producer of coffee crop is America, Brazil and Vietnam. Thus it also depends on the production and supply of particular crop that are produced in larger quantity and the major impact has been shown in US region wherein, the demand of coffee as beverage is continuously rise.

At the same time, the higher demand for coffee products leads to higher prices of coffee beans. The impact of higher demand reflects on other regions as well other than America and Brazil (Yang et al., 2012). In context to Brazil regions, it is expected to increase in the price of Robusta beans. Thus, it can be stated that world level of consumption are supposed to increase with increase in price.

(c) The effect of world equilibrium price and quantity of coffee if trial the new specie is successfully

In this situation, there is risk involved as this the new coffee specie. But, at the same time, there is possibility to be famous in the market as customer seems ready to purchase new coffee in the market.

Apart from that, it also depends on the price, market conditions, import and export policies and volume among the coffee producers and suppliers in the world (Ruben and ford, 2012).

On the other hand, America, Brazil, Vietnam and Columbia can create the good market for new coffee specie as these nations are the largest coffee consumer as well and customer like to experiment with their taste buds.

Thus, it can be stated that at the time of launch the price of new coffee specie can be lower and if demand increases then be slowly higher in order to take advantage of competitive environment and stabilize its market and in search of customer.

(Ruben and ford, 2012)

Answer 3

(a) Q^D=Q^S

24-P=3P

24=3P+P

24=4P

24/4+P

6= P

Quantity = 24- P

=24-6

Quantity = 18

(b) If government allows the international trade in the market with no international trade. It will create competition that will benefit the customer with the availability of various products and services.

At the same time, foreign players can take the advantage of entering into new market and attract the customers with their marketing strategies (Menyah et al 2014). However, it can create challenges for domestic companies in order to face the challenges.

(c) In case government implements a tariff $2 per unit it will certainly impact the market in terms of supply and demand. As to why, it will impose the taxes on producers that will be charged from customers indirectly. Thus, if the commodity’s price goes up leads to decline in demand (Fagiani et al 2013).

Thus, decrease in demand affects the supply in the market. Due to imposition of tax producer will supply less due to decrease in demand and demand get reduced because of higher prices of demand. Hence, there are inverse ration ship in price and quantity demanded.

(d) Deadweight loss results when so many resources allocated to production. At the same time, when there is shortage of products and services customer like to engage more resources for producing goods or services (Nowag, 2012).

In addition wherein, the excess of supply over demand provides in the market due to overproduction and product with lower prices remain unsold in the market cause to under consumption. In both the scenarios, surplus get reduced from producer and as well as consumer.

(e) This tariff seems inefficient to the market for creating the imbalanced market economy. In this case, subsidy can be opted as an alternative of tariff to domestic businesses so that they can also survive in the competitive working environment and growth further. In this scenario, consumer will be benefitted the most and take advantage of competitive market environment.

(f) Demand and supply in case of over production

(Michalek et al, 2013)

The above mentioned graph shows the deadweight loss in case of underproduction and overproduction.

References

Achkasova, S., 2015. The governmental regulation of the insurance market in the European integration processes. Економічний часопис-ХХІ, (7-8 (2)), pp.49-52.

Brito, R.P.D., Miguel, P.L.D.S. and Pereira, S.C.F., 2016. Impacts of natural disasters in Brazilian supply chain: the case of São Paulo drought.

Dai, Y. and Xue, L., 2015. China’s policy initiatives for the development of wind energy technology. Climate policy, 15(1), pp.30-57.

Fagiani, R., Barquín, J. and Hakvoort, R., 2013. Risk-based assessment of the cost-efficiency and the effectivity of renewable energy support schemes: Certificate markets versus feed-in tariffs. Energy policy, 55, pp.648-661.

Jena, P.R., Chichaibelu, B.B., Stellmacher, T. and Grote, U., 2012. The impact of coffee certification on small‐scale producers’ livelihoods: a case study from the Jimma Zone, Ethiopia. Agricultural economics, 43(4), pp.429-440.

Kesicki, F. and Ekins, P., 2012. Marginal abatement cost curves: a call for caution. Climate Policy, 12(2), pp.219-236.

Menyah, K., Nazlioglu, S. and Wolde-Rufael, Y., 2014. Financial development, trade openness and economic growth in African countries: New insights from a panel causality approach. Economic Modelling, 37, pp.386-394.

Michalek, J., Ciaian, P. and Kancs, D.A., 2013. Firm-level evidence of deadweight loss of investment support policies: a case study of dairy farms in Schleswig-Holstein (No. 964-2016-75027).

Norman, G., 2014. Deadweight Loss. In Dictionary of Industrial Organization. Edward Elgar Publishing Limited.

Nowag, J., 2012. An Introduction into competition law: The substantive provisions of the Malaysian competition act in light of its European origins. Malayan Law Journal, 4.

Ruben, R. and Fort, R., 2012. The impact of fair trade certification for coffee farmers in Peru. World Development, 40(3), pp.570-582.

Ruiz Meza, L.E., 2015. Adaptive capacity of small-scale coffee farmers to climate change impacts in the Soconusco region of Chiapas, Mexico. Climate and Development, 7(2), pp.100-109.

Yang, S.H., Hu, W., Mupandawana, M. and Liu, Y., 2012. Consumer willingness to pay for fair trade coffee: a Chinese case study. Journal of Agricultural and Applied Economics, 44(1), pp.21-34.