S121 ECO504 BUSINESS ECONOMICS

Business economics

Name

Institution

Course

Instructor

Date

Question 1

a. Explain why the law of demand applies to food just as it does to all other goods and services. Discuss the price elasticity of demand for food.

https://www.assignmentexpert.com/homework-answers/economics/microeconomics/question-187025

Go to this link and try to structure your answer in this way. It is much more clear and easy to understand.

The law of demand is one of the most vital concepts in economics. It works with the law of supply to explain how market economies determine the prices of goods and services in everyday transactions. The law of demand states that quantity of goods and services purchased varies inversely with price of the products. The higher the price the lower the quantity demanded and this happens because of diminishing marginal utility. The law of demand applies to food just like any other goods. When the demand for food is high, the prices increase. Demand of a product dictates its price. However, increase or decrease in prices does not increase or decrease demand, it changes the quantity demanded. The law of demand applies to food because there is both a substitution and an income effect that reinforce each other. When the prices of food increase, there is a negative income effect and thus consumers buy less food with the raising price. The higher the price of food the less the quantity of food demanded. Consumer demand for goods and services is measures as an elasticity, which provides a vital means of comparison across all ranges of quantities(Fernando, 2021).

The law of Demand states that there is a negative relationship between the price of a good and quantity demanded of the good. Therefore, an increase in the price of a good will decrease the quantity demanded of the good and vice-versa, when all the other factors that affect the demand of the good are constant. Keeping the law of demand in mind we can see that when the price of food increases people will tend to increase their demand towards other food

The price elasticity of demand refers to the measure of the responsiveness of demand to a change in price. Food is price inelastic if it is not responsive to price when its own price elasticity is greater than negative one. On the other hand, food is price elastic if it is responsive to price when its own price elasticity is less than negative one. For instance, an own price elasticity for oranges of -0.5 means that a one percent increase in price of oranges decreases demand for oranges by 0.5 percent.

b. Explain the drivers of rising food prices in Australia. Use the concept of elasticity to explain the changes in equilibrium price and quantity.

https://www.thebalance.com/why-are-food-prices-rising-causes-of-food-price-inflation-3306099

Go to this link and see what drives the food prices high. There you can add the “More Meat Eating” and “2020: The COVID-19 Pandemic” in your answer.

There is increasing agreement that food prices have increased due to significant changes in global supply and demand. A number of drivers have contributed to increase in the prices of food in Australia such as high energy prices, increased levels of income, and climate change among other forces (The World Bank, 2012). Income and per capita consumption in Australia has increased, which consequently increased the demand for food. When the demand for a product is high, the prices increase. In addition, the supply of food has not been stable (Fernando, 2021). When the supply of groceries is limited, the prices go up. According to the law of demand and supply, when supply of goods and services is limited, the prices of the products go up. Therefore, decrease in supply of food products has a direct impact on the price. Increase in levels of income among consumers in Australia significantly affect the prices of food stuffs. When consumers have a high disposable income, they spend more and in return, prices for food increase. Using the concept of price and demand equilibrium, increase in demand and decrease in supply of food causes a rise in equilibrium price.

Consumers place the value of products if the value is high, producers increase the prices. Increase in the price of food does not result in a decrease in demand for food, it instead results in decrease in the quantity of food demanded. For instance, if prices of food increase, consumers will purchase less quantity of food. The equilibrium price in any given market is the price at which the quantity demanded is equal to the quantity supplied. On the other hand, the equilibrium quantity is the quantity demanded and supplied at the equilibrium price.

Question 2

a. What are the major drivers of rising house prices in Darwin?

Include the factor of Covid in this answer.

Several reports have significantly labelled Darwin as unaffordable city because of high rents and high prices. A major political issue for Darwin in the 21st century is apparent lack of affordable housing in and around the city, which has attracted political and media attention. The primary cause of rise in house prices in Darwin is demand. Increase in demand of a commodity results in an increase in the price of the commodity. There is an increasing number of people seeking for accommodation in the city which has contributed to higher prices for houses. In addition, financial assistance has been linked to high housing prices. According to the law of demand and supply, when the demand is high, the prices of a commodity go up (Fernando, 2021). The same case applies to Darwin city. House owners have capitalized on the increasing demand for accommodation to increase prices of houses. In addition to demand for houses, income growth has significantly affected the prices of houses in the area. According to research, incomes growth has continued from economic growth in the city which has added to the pre-existing high incomes to support and lead rental and house prices in and around Darwin (Charles Darwin University, 2010). People engage with the Territory economy based on high income sectors as mining, public administration, and defence, where wages are very high have contributed to high housing and rental prices. However, increases in the price of housing in Darwin would drive many people out of the city who cannot afford the prices. When the demand exceeds supply, the prices tend to increase. In the figure below, increase in demand for houses will result in result in increase in price for housing.

b. How will the widespread availability of vaccines impact the housing market in future?

The COVID-19 has significantly affected the housing market, especially in big cities. However, the news of widespread vaccination is projected to tune the market on its head again. Most expensive cities have seen a higher vacancy rates and lower rents and sale prices as majority of people, untethered from office jobs have moved to less densely populated areas following the outbreak of the pandemic. In addition, the pandemic has negatively affected the global economy. Majority of people in major cities have been rendered jobless by the pandemic as many companies have closed down. As a result, their ability to afford houses has been significantly affected. Due to low income and joblessness caused by the pandemic, many people have been unable to pay for rent or buy houses. Others have moved to rural areas where housing is cheaper. However, with the potential widespread vaccines. Housing market could see a turnaround. The widespread vaccination is good sign that housing market will continue to recover (Bahney, 2020). More people will start moving to the city, economy will stabilize and companies will open. This is projected to have a direct impact on the housing market. Housing is directly linked to income. When people are earning a good income, they are able to afford houses in the city. The vaccines will bring life closer to normal. Widespread vaccination will see schools reopen and companies bringing people back. The pandemic resulted in significant vacancy rate increase as people moved out of major cities. People looking to buy homes will not leave the suburbs behind. Working from home may be here to stay for a longer period and this would impact people’s decision when buying home. Working from home has created a wish list for new homes that include office space and outdoor space. Therefore, strong demand for suburbs is projected to increase in future.

Question 3

a. Describe the costs and benefits of installing solar panels in Darwin. Describe the externality that arises from the use of solar panels in Darwin. What is the best way to avoid or regulate externalities?

Darwin is one of the northernmost cities of Australia. Its location in the sunny topics makes it a best place to install solar panels. Solar panels would serve as an alternative source of energy in the city. The amount of electricity produced will depend on the size of solar panel installed. The impact of installing solar panels in the city is that it increases the supply of energy, which will significantly drive the costs of power down. In addition, solar energy is clean energy. It does not have any potential hazards to the environment(von Möllendorff & Welsch, 2017). It would be a significant step towards green energy.

Externality refers to the benefit or cost caused by a producers that is not financially incurred by the producer. Externalities can have both positive and negative impacts and stem from either in the production or consumption of a product. The benefits of installing solar panels have a positive environmental impact. A positive externality of installing solar panels is that it protects the environment from pollution that have otherwise been generated if consumers used other forms of energy such as fossil fuels that generate greenhouse emissions which have negative impacts on the environment as well as public health (von Möllendorff& Welsch, 2017). Solar panels protect the environment from global warming which is associated with fossil fuels(Pettinger, 2014). In addition, the prices of energy would go down, when the supply is high and demand is constant, prices decrease. Therefore, consumers will benefit from reduced energy charges. Solar energy is an alternative source of energy to natural gas and coal. It is a renewable source of energy and thus there is no danger of it running out. Installation of solar panels has direct impact on the coal and gas industry. The fall in the price of solar energy means demand for coal and gas, a substitute to solar energy, would fall.

For the production and installation of Solar Panel, more people will get employed so it will increase employment.

The best way to regulate externalities is through government intervention. The government can respond to externalities in two ways. It can use command and control policies to regulate market behavior of key players. Also, the government can implement market based policies such as taxes and subsides to incentive decision makers to change their behavior. Command and control regulation can be in form of government imposed targets, standards, process requirements, or outright bans. For example, the government can make it mandatory for consumers to use green energy.

b. Draw a graph to illustrate how solar panels have an impact on social welfare. Use the concepts of allocative and social efficiency.

Solar panels have significant impacts on social welfare. Some of those are as follows:

· First, generation of electricity from solar panels emits a less pollution to the air and thus solar energy is one of the cleanest sources of energy. As a result, cities that would decide to use solar energy will have cleaner quality of air in the region, which in turn will result in good health among citizens.

· Burning fossil fuels facilitates global warming. Since solar energy does not emit any greenhouse gases, it does not facilitate global warming. Using solar energy to generate electricity helps diminish effects of global warming such as sea levels raising.

· In addition to health, there are several ways in which solar energy can stimulate the economy. Solar installation creates employment and thus more people will have enough money to contribute to the growth of the economy.

· Furthermore, production of solar energy is less expensive compared to generation energy using fossil fuels, which is the traditional method of generating electricity. As a result, if businesses and households decide to use solar energy in their homes and building, their electricity bills will significantly reduce compared to if they used energy generated from fossil fuels. In long-term, the financial difference from cheaper energy bills can be substantial, enabling businesses and families to inject more of their finances into the economy (Pettinger, 2014).

Allocative efficiency refers to the level of output where the price of a commodity is equal to the marginal cost of production and is attained when services or goods are distributed optimally in response to consumer demands and when the marginal cost and marginal utility of goods and services is equal. In the graph below, the allocative efficiency of solar energy is found at the point where supply and demand curves intersect. Production of solar energy creates an alternative source of energy thus consumers are able to enjoy reduced prices for energy. In the graph, the point in which marginal cost crosses the demand curve is the point of allocative efficiency. Solar energy would do away with allocative inefficiencies created by monopolies.

References

Bahney, A. (2020). How a vaccine could upend real estate markets—again. https://edition.cnn.com/2020/11/18/success/vaccine-real-estate-new-york-city/index.html

Charles Darwin University. (2010). Darwin’s housing market – Darwin’s housing market – a crisis for whom? a crisis for whom?https://www.cdu.edu.au/sites/default/files/research- brief-2010-53.pdf

Fernando, J. (2021). Law of supply and demand. https://www.investopedia.com/terms/l/law-of- supply-demand.asp

Pettinger, T. (2014). The economic effects of cheaper solar power. https://www.economicshelp.org/blog/10767/alevel/the-economic-effects-of-cheaper- solar-power/

The World Bank. (2012). What are the facts about rising food prices and their effect on the region. https://www.worldbank.org/en/news/feature/2012/09/13/america_latina_crisis_precio_ali mentos

von Möllendorff, C., & Welsch, H. (2017). Measuring renewable energy externalities: evidence from subjective well-being data. Land Economics, 93(1), 109-126.