BUSS102 MARKET MICROECONOMICS Principles
Session 1, 2017
Tutorial Presentation: Group 5
Due: Week 10 Tutorial Class
1.  A  recent  Australian  government-commissioned  health  report  shows
that tooth decay among  children and  low income earners has risen
by  10%  since  2000.  Should  the  government  subsidise  dental  care
for  children  and  low  income  earners?  Critically  discuss.  Use
appropriate economic tools, including  diagrams, studied  in this unit
to illustrate your arguments.
2.  In  2010,  the  Australian  government  imposed  a  tax  on  Alcops  to
reduce  teenage  binge  drinking  and  alcohol-related  harms  and
hospitalization, and also to raise tax revenue. However, by the end
of  the  financial  year  no  reductions  in  teenage  binge  drinking  and
alcohol-related  harm  were  recorded  and,  moreover,  the  revenue
raised from the tax was 6% less than predicted.
a.  As  an  economist,  are  you  surprised  about  the  outcome  of  the
government’s  tax  policy?  Critically  discuss.  Use  the  demand  and
supply  model  and  other  appropriate  microeconomic  tools  you  have
learned in this unit to illustrate your argument.
b.  Who  bore  a  greater  burden  of  the  tax,  the  buyers  or  sellers  of
Alcops? Was the outcome of the tax efficient?
c.  What  other  policy  could  the  government  implement  to  reduce
teenage  binge  drinking  and  alcohol-related  harm  and
hospitalization? Explain.
Price
(dollar per tonne)
Quantity
demanded
(kilo tonnes)
Quantity
supplied
(kilo tonnes)
100  2,000  0
150  1,400  600
200  1,200  800
250  1,000  1,000
300  800  1,200
350  600  1,400
400  0  2,000
3.  The  table  shows  the  demand  and  supply  schedules  for  US  wheat
market.  The US Farm Bill 2012 indicates that the domestic price of
wheat  will  be  set  at  $300  per  tonne,  which  is  above  the  market
equilibrium level of $250 per tonne, in order to support for domestic
wheat  growers.   At  the  market  equilibrium,  1,000  kilo  tonnes  (Kt)
are supplied.
a.  The US Farm Bill 2012 indicates that the domestic price of wheat is
set at $300 per tonne, which is above the market equilibrium level
of $250 per tonne, in order to support for domestic wheat growers.
On a graph, show if it creates a shortage or a surplus in the market
for wheat, and explain why and by how much.
b.  On  a  graph,  explain  how  the  price  control  in  the  US  would  change
the consumer surplus, producer surplus, and deadweight loss in the
domestic  wheat  market.  Assume  that the US  does  not  trade  wheat
internationally.  Also,  calculate  the  changes  in  consumer  surplus,
producer  surplus  and  deadweight  loss.  (Remember  1  kilo  tonne  =
1,000 tonnes)
c.  Is the outcome of the US Farm Bill fair? critically discuss.

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