Question 1 : The table sets out the demand and supply schedules for banana.

(a)    Draw a graph of the market for banana. What are the equilibrium price and quantity? Explain why.

(b)      If the price of banana was $1.50 a box. What would be the situation in the banana market (shortage or surplus)? Explain why and how the price and quantity would adjust.

(c)       Suppose a cyclone destroyed some banana farms in QLD and the quantity of banana supplied decreased by 500 boxes a week at each price. Explain what would happen to the market supply and demand and how would the equilibrium price and quantity adjust? Illustrate the changes on your graph.

(d)      Suppose a cyclone decreased banana supply by 500 boxes a week at each price. But at the same time the demand for banana increased by 500 boxes a week at each price. Explain what would happen to the market equilibrium price and quantity? Illustrate the changes on your graph.

Question 2 -The demand schedule for computer chips is in the table.

(a)      What happens to total revenue if the price falls from $400 to $350 a chip and from $350 to $300 a chip? Explain your answer.

(b)      At an average price of $300, is the demand for chips elastic, inelastic, or unit elastic? Explain your answer using the total revenue test.

When Rie's income was $3,000, she bought 5kgs of rice and 2kgs of beef a month. Now her income is $4,000 and she buys 4kgs of rice and 3kgs of beef a month.

(c)       Calculate Rie's income elasticity of demand for beef. Show your calculation.

(d)      Calculate Rie's income elasticity of demand for rice. Is rice normal good or inferior good? Show your calculation.

Suppose a drought cuts the quantity of wheat grown by 3 per cent.

(e)      If the price elasticity of demand for wheat is 0.3, by how much will the price of wheat rise? Show your calculation.

(f)       If pasta makers estimate that this change in the price of wheat will increase the price of pasta by 20 per cent and decrease the quantity demanded of pasta by 5 per cent, what is the pasta makers' estimate of the price elasticity of demand for pasta? Show your calculation.

(g)      If pasta sauce makers estimate that, with the change in the price of pasta, the quantity of pasta sauce demanded will decrease by 4 per cent, what is the pasta sauce makers' estimate  of the cross elasticity of demand for pasta sauce with respect to the price of pasta?

Question 3: Part A: The table shows the demand and supply schedules for low-cost housing.

(a)      If the government puts a rent ceiling of $650 a month on rooms, what is the rent paid, how many rooms are rented? Is the low-cost housing market efficient? Why?

(b)      If the government strictly enforces a rent ceiling of $550 a month, what is the rent paid and how many rooms are rented? Is the low-cost housing market efficient? Explain why.

(c)       If the government strictly enforces a rent ceiling of $550 a month, what happens to consumer surplus and producer surplus? Also, calculate total housing search costs and deadweight loss. Show your calculation.

Part B: Fair Work Australia has increased the minimum wage by $26 a week, lifting the minimum weekly pay to $570. The union movement had been pushing for a $27 a week increase, but employer groups had argued that that level of increase was unaffordable and would send smaller firms to the wall.

Source: ABC News, 11 February 2011

(d)      On a graph of the labour market, show and explain the effect of the $26 a week increase in the minimum wage on the quantity of labour employed, workers' surplus and firms' surplus, job search costs and social deadweight loss. Has the labour market become more efficient or less efficient?

(e)      What would be the effects if the minimum wage was set below $544? Explain your answer.   

Question 4: Power plants in China have run short of coal, an unintended effect of government-mandated price controls - a throwback to communist central planning ----- to shield the public from rising global energy costs. ... Beijing has also frozen retail prices of gasoline and diesel. ... Oil refiners say they are suffering heavy losses and some began cutting production last year, causing fuel shortages in parts of China's south.    

CNN, May 20, 2008

(a)      Are China's price controls described in the news clip a price floor or a price ceiling?

(b)      On a graph, show and explain how China's price controls have created a shortage or a surplus in the markets for coal, petrol, and diesel.

(c)       Show on a graph and explain how China's price controls have changed consumer surplus, producer surplus, and deadweight loss in the markets for coal, petrol, and diesel. 

The US Farm Bill 2012 indicates that the domestic price of wheat will be maintained at above the market equilibrium level in order to support for domestic wheat growers. 

(d)      Is the wheat price control in the US a price floor or a price ceiling?

(e)      On a graph, show and explain if the price control in the US creates a shortage or a surplus in the market for wheat. Assume that the US does not trade wheat internationally.

(f)       Show on a graph and explain how the price control in the US changes consumer surplus, producer surplus, and deadweight loss in the domestic wheat market.

Question 5: South Korea is one of the major beef importing countries. With no international trade, Korea's equilibrium price for beef was $10 million per kilo tonne and equilibrium quantity was 30 kilo tonne. If Korea opens its market to international trade with no tariff, domestic supply would be 10 kilo tonne and domestic demand would be 50 kilo tonne at the world price of $5 million per kilo tonne. However, Korea currently imposes 40 per cent tariff rate on all imported beef. With 40 per cent tariff, Korea's domestic supply and domestic demand are 20 kilo tonne and 40 kilo tonne respectively. Assume that intercept of supply curve is $3 million and demand curve is $15 million per kilo tonne.

(a)      Draw a graph to analyse the effects of 40 per cent tariff rate in Korea on the price, domestic supply of and demand for beef, and compare the situation with no tariff case.

(b)      Use the graph to identify and explain the gains and losses from trade with 40 per cent tariff rate, the tariff revenue and the deadweight loss.

(c)      Calculate the values of change in consumer surplus, producer surplus, tariff revenue and the amount of deadweight loss. Show your calculation.

(d)     Suppose that Korea does not impose tariff any more but instead imposes an import quota of 20 kilo tonne. Explain what happens to beef price, demand and supply, and beef imports in Korea. Also, draw a graph to identify and illustrate the gains and losses from the import quota and the importers' profit and the deadweight loss.