Assignment -
1. In 2011, Australia removed a 90-year ban on the importation of New Zealand apples. Growers in New Zealand would have sold but could not sell their apples to Australian consumers at prices below the market price of apples in Australia when the ban was in effect. Identify which of the following three statements best describes the ban. Explain your answer and support it with a diagram. You can select and explain only one statement.
a. The ban is an ideal example of a regulation that corrects a market failure.
b. The ban affected only New Zealand apple growers. It had no effect on Australian apple consumers or apple growers.
c. The ban created the possibility of a mutually beneficial exchange for Australians.
2. Lakeland Equipment is the only authorized John Deere dealer in the Rochester area. (Lowes, Home Depot and other retailers do carry less expensive John Deere mowers but Lakeland is the only source for more expensive mowers, tractors and other farm equipment.) Explain why John Deere publishes the prices of the equipment online instead of allowing a retailer with an exclusive franchise to set the mower prices. Your explanation should specify whether the publication of prices by John Deere means dealers will earn less profit than they would if prices were not published.
3. An employer contracts with an outside vendor to provide coffee, tea, juices, bagels and other pastries to his employees. The vendor operates a small number of kiosks at which the beverages and bakery items are sold. They are located throughout the company's facilities.
The employer proposes to compensate the vendor for any lost revenue if the prices for all items are halved. The likely payments to the vendor for lost revenue will amount to approximately $150 per employee per year. Describe the circumstances that would make reduced vendor prices more appealing to employees than an increase in annual pay of $150. Illustrate your answer with a diagram. Hint - Don't get confused because the vendor sells several items. Construct your diagram for one item and assume the cost to the employer of subsidizing its price is $150.
4. For a number of years the executives of a company had a significant portion of pay based on product margins, which the company calculates as the difference between price and average cost.
A new CEO decides to change the procedures for linking profit margins and pay. She announces that in the future all proposed price increases must receive the approval of top managers. Executives will, however, have full authority to reduce prices. Many employees claim that the CEO is meddling in ways that will produce lower prices, lower profit margins and hence lower profits. Critically evaluate these employee complaints. Illustrate your answer with a diagram.