Question 1: Suppose the expected market demand for tickets to the Australian Open golf tournament to be held in Queensland in November is given by D = 40,000 -1,000P and the supply of tickets is S = 20,000.
a. What is the equilibrium price of a ticket to the tournament? How many tickets will be sold?
b. Draw a diagram illustrating the demand and supply curves and the equilibrium price and quantity. The rising incomes of mine workers in Queensland, who happen to be big golf fans planning to attend the tournament, has resulted in a new demand curve given by D = 70,000 - 2,000P. Supply of tickets to the tournament remains at S = 20,000.
c. What is the new equilibrium price of a ticket to the tournament? How many tickets will be sold?
d. Illustrate the new equilibrium price and quantity on your diagram (from question b.)
e. What is the change in consumer surplus as a result of the increased incomes of golf fans? What is the change in producer surplus?
f. Who is better-off as a result of the change in demand? Why? Explain fully.
Question 2 Assume that the Federal Parliament is considering eliminating or reducing surcharges that banks impose on non-customers who make withdrawals from ATM machines. On average, noncustomers earn a wage of $20 per hour and pay ATM fees of $2.75 per transaction. It is estimated that banks would be willing to maintain 3 services for 4 million transactions at $0.75 per transaction, while noncustomers would attempt to conduct 16 million transactions at that price. Estimates suggest that, for every 1 million gap between the desired and available transactions, a typical consumer will have to spend an extra minute travelling to another machine to withdraw cash.
a. Based on this information, use a graph to carefully illustrate and explain the impact of legislation that would place a $0.75 cap on the fees banks can charge for noncustomer transactions.
b. How many minutes will the average consumer spends travelling to another ATM machine? Explain.
c. What is the resulting non-pecuniary price of an ATM transaction?
d. What is the resulting full economic price?
Question 3 Assume the demand for cars in Australia is given by D = 12,000 - 200P, where P is the price of a car (in $000). Supply by Australian (domestic) car producers is SD = 7,000 + 50P.
a. Assuming that the Australian economy is closed, find the equilibrium price and production of cars.
b. The Australian economy is now open to international trade. The world price of cars is $18. Find the domestic quantities demanded and supplied and the quantity of imports. Illustrate your results from parts (a) and (b) in a diagram. Who will favour the opening of the car market to international trade, and who will oppose it?
Assume domestic producers have successfully lobbied the government to impose some form of trade restriction against foreign imports of cars. However, the government is uncertain about what form this restriction should take and is considering 2 options. (N.B. Begin each option from the free trade position in part b.)
c. Option 1: The government imposes a tariff of $1per car. Find the effects on domestic quantities demanded and supplied and on the quantity of imports. Also find the revenue raised by the tariff. Who will favour the imposition of the tariff and who will oppose it?
d. Option 2: Suppose the government imposes an import quota of 250 cars by issuing import licences to a select few. Find the equilibrium price in the Australian car market, as well as the quantities produced by Australian firms and purchased by Australian consumers. How much revenue do the holders of import licences earn?
The government is still uncertain about what to do. Evaluate the free trade position (part a) and Options 1 and 2 (parts b and c) by stating which of the three situations each of the following would prefer. Would consumers prefer free trade, Option 1, or Option 2?