Economics assignment on: Demand & supply graphs
Q1a). Assuming both hamburgers and vegetables are normal goods for Ronald and with the aid of a diagram, explain how Ronald determines his optimal consumption bundle of vegetables and hamburgers. You do not need to include numbers on your diagram. For convenience in later parts of the question, place hamburgers on the horizontal axis.
Ans1a). Hamburger & vegetables have been referred to as normal goods for Ronald. Ronald determines the optimal consumption bundle of vegetables & hamburgers could be discussed as follows.
It could be seen that, in case of normal goods the quantity demanded is directly proportional to the levels of income of the consumer. It could be seen from the graph above that. With an increase in the levels of prices of the vegetables, it could be seen that the budget line for hamburgers have shifted from B1 – B2 (Berkeley, 2006). It could also be seen that, the consumption point of the hamburgers have also shifted from one point to another. The shift has been estimated due to the income or the substitution effect. With any of the effects mentioned above the budget line has shifted from blue colored line to green colored line (Shi & Smyth, 2012).
The optimal consumption of the goods i.e. hamburgers & vegetables could be seen at Quantity 1 & with the shift of the budget line the optimal consumption has been changed to Quantity 2 level. The effect due to which the consumption of the goods has been shifted is either due to the substitution effect or due to the change in the income level of the same (Mieszkowski, 2010).
Q1b). Assuming the educational campaign has a degree of success, explain and illustrate with a diagram how it is likely to impact Ronald’s optimal bundle of hamburgers and vegetables.
Ans1b). Educational campaigns would have a great impact over the optimal bundle of hamburgers & vegetables. Educational campaigns would help in order to increase the awareness regarding a particular issue over the consumers, producers, etc (Mieszkowski, 2010). These educational campaigns would help in order to promote various eco-friendly methods in order to optimize the bundle of the same. The recent educational campaigns would have an adverse effect over the consumption of hamburgers & vegetables. Educational campaigns would help in order to discourage the consumption of hamburger & vegetables due to an overall rise in the levels of obesity (Berkeley, 2006).
Hamburger Hamburger
Before Educational Campaign After Educational Campaign
Q1c) Explain and illustrate with a diagram how the tax on hamburgers is likely to impact Ronald’s consumption of hamburgers and vegetables. [Using the indifference curve from part (a)].
Ans1c). The government could introduce tax upon the consumption of hamburgers. Tax refers to a financial charge which has been levied upon by various sub-national entities which would help in order to impact the overall consumption of the hamburgers & vegetables.
With the imposition of the taxes over the same, the consumption of hamburgers with an increased price level would decrease. Despite of the increase in the income levels of the consumers, the tax element levied upon hamburgers & vegetables by the government would limit the consumption of the same (Shi & Smyth, 2012). Taxes would lead to a decrease in the consumption levels of hamburgers & an increase in consumption levels of it substitutes such as Pizza, Hot Dogs, etc. With the help of the taxes, levels of consumption would reduce thereby leading to an increase in the overall levels of savings. The applicability of tax would also help in the up gradation of the productivity level as well as an enhancement of the overall economy (Mieszkowski, 2010).
The Dark Black Line represents the levels of tax which is applicable & has led to a reduction in the overall consumption of the same.
Q2a) Explain the difference between economies of scale & returns to scale.
Ans2a) The difference between economies of scale & returns to scale could be explained with the help of the following parameters. They are as follows:
| Basis | Economies of Scale | Returns to Scale |
| Definition | Economies of Scale have been defined as a term in macro-economic which would help in order to attain cost advantage. | Returns to Scale has been defined as a term which is related to economics of scale & describes an increase in the overall production of the goods and services. |
| Relationship | The Economies of Scale has been rendered to the cost of the firms. | The Returns to Scale has been defined as a relationship between the inputs as well as the outputs amongst the production function. |
The term returns to scale has been related along with the production function. This means that, the changes in the levels of output would lead to a change in the overall input of the same. If there is an decrease in the levels of output with the same proportion as that of the input then it is known as Constant Returns to Scale & vice a versa (Shi & Smyth, 2012).
Q2b). Why does it matter whether economies of scale exist in the Australian tourism industry?
Ans2b). The tourism industry refers to one of the major sectors which contribute towards the GDP of the Australian economy. The various figures which constitute in regards to the tourism sector of the Australian economy states that, this would help in order to boost the overall growth of the travel & tourism sector (Gelles & Mitchell, 2006). The expansion of the economy would lead to an overall rise in the efficiency as well as productivity growth of the same.
It is one of the crucial aspects to know whether the Australian tourism industry exist as economies of scale or not. Australian tourism sector has been rendered to as one of the major means of foreign exchange (Berkeley, 2006). This helps in order to exchange capital goods & used in the overall production process. Tourism sector helps in generating high levels of employment as well as upgrade its technical & human capital of the same (Shi & Smyth, 2012).
There is a link amongst the tourism as well as growth of the economy. It has been noticed that, the government would use various methods in order to attract more number of visitors towards the same. With the help of various promotional methods, the tourism industry has helped in the effective & efficient functioning of the economy (Gelles & Mitchell, 2006).
Q2c). What are the main conclusions of Shi & Smyth?
Ans2c) The main conclusions for Shi & Smyth is that there is huge levels of arguments for the promotion of the Australian tourists. The entire article highlights the various standards in regard to the promotion of the Australian tourism sector (Mieszkowski, 2010). Promotion of the tourism sector would help in order to cover various other topics which would help in order to upgrade this sector in the years to come. The economies of scale could be seen in the following four sectors such as tourism, transport, trade & recreational services (Berkeley, 2006). There has been an increase in the returns of the transport sector followed by a rise in the recreational as well as the trade sector. The writer of the article concludes the article by stating that, economies of scale in regards to the Australian tourism sector would have huge impact over the policy as well as the promotion of the same (Gelles & Mitchell, 2006).
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