Australia food price are expected to increase this year. It is ✓ Solved

1. Australia food price are expected to increase this year. It is in this context answer the following questions:

(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. [4 marks]

(b) Explain the drivers of rising food prices in Australia. Use the concept of elasticity to explain the changes in equilibrium price and quantity [6 marks] Word limit: 600 words

2. Prices of houses in Darwin have been rising in 2020. It is in this context, answer the following questions:

(a) What are the major drivers of rising house prices in Darwin. [5 marks]

(b) Using an appropriate diagram, explain your answer in part (a) above. [2 marks]

(c) How will the widespread availability of vaccines impact the housing market in future. [3 marks] Word limit: 600 words

3. Darwin gets plenty of sunshine throughout the year yet the power bills remain high in the Territory.

(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? Discuss. [5 marks]

(b) Draw a graph to illustrate how solar panels have an impact on social welfare. Use the concepts of allocative and social efficiency [5 marks] Word limit: 800 words

Paper For Above Instructions

Australia's Increasing Food Prices

As Australia faces a projected increase in food prices this year, it's essential to understand the underlying economic principles at play, particularly the law of demand, the elasticity of demand for food, and the factors driving this price increase. The law of demand states that, all else being equal, an increase in the price of a good leads to a decrease in the quantity demanded. This principle applies to food, just as it does to other goods and services. As food prices rise, consumers will either reduce their consumption of certain food items, switch to less expensive alternatives, or even forego purchases altogether based on their income constraints and preferences.

The price elasticity of demand for food can vary significantly based on the type of food and the availability of substitutes. Generally, the demand for staple foods tends to be inelastic because these goods are necessities for consumers. In contrast, luxury food items may exhibit more elastic demand, where consumers can reduce their consumption in response to price increases. This difference highlights how consumers respond to price changes relative to their perceived need for food products.

Drivers of Rising Food Prices in Australia

Multiple factors contribute to the rise in food prices in Australia. These include supply chain disruptions, climatic conditions affecting production, increased production costs, and changes in consumer preferences. Supply chain disruptions, exacerbated by events such as COVID-19, have led to increased transportation costs and reduced availability of goods. Additionally, adverse weather conditions such as droughts or floods can reduce crop yields, thereby limiting supply and driving prices upward. Furthermore, the cost of input factors like labor, fertilizers, and energy can increase production costs, which are often passed on to consumers in the form of higher prices.

Elasticity plays a crucial role in understanding how these factors affect equilibrium price and quantity. For instance, if food supply decreases due to adverse weather, the supply curve shifts leftward. If demand remains steady, this shift results in a higher equilibrium price and a lower quantity of food available in the market. Conversely, if demand falls—for example, due to higher prices leading consumers to buy less—higher prices might not effectively translate to increased revenue for producers, potentially causing further adjustments in the market.

Rising House Prices in Darwin

Turning to the housing market in Darwin, several key drivers have contributed to rising house prices in 2020. Economic growth, low-interest rates, and population growth are significant contributors. Economic growth typically leads to increased employment opportunities, encouraging more people to move to urban centers like Darwin for work. Low-interest rates make borrowing cheaper, giving potential home buyers greater purchasing power. Additionally, an influx of migrants can increase demand for housing, thereby pushing prices upward.

To illustrate these dynamics, an appropriate demand and supply diagram can be employed, showing shifts in the demand curve as population increases and/or interest rates decrease. When demand increases, the equilibrium price rises, leading to higher housing costs. Future impacts, such as widespread vaccine availability, could further influence the housing market by potentially increasing consumer confidence and stimulating economic growth, ultimately driving demand and prices up further.

Solar Panels in Darwin

Lastly, regarding energy costs, installing solar panels in Darwin presents several benefits and drawbacks. The primary benefits include long-term savings on energy costs, a reduction in carbon emissions, and the potential for government incentives. By using solar energy, households can reduce their dependence on grid electricity, thus lowering electricity bills. However, the initial costs of purchasing and installing solar panels can be significant, which can deter some consumers from investing in this green technology.

Additionally, the use of solar panels generates externalities, both positive and negative. Positive externalities include environmental benefits, as fewer fossil fuels are burned, which helps combat climate change. However, a negative externality may arise from potential impacts on the local power grid when excess solar energy is produced and fed back into the grid, potentially creating issues for utility companies in terms of management and pricing structures.

To regulate these externalities, governments can consider implementing policies that encourage solar energy use while simultaneously ensuring that the grid can accommodate increased use of distributed power generation. Methods may include investments in infrastructure, adjustments in pricing mechanisms, and providing incentives for households to adopt solar technology.

Graphical representation can be employed to illustrate the impact of solar panels on social welfare, focusing on the concepts of allocative efficiency and social efficiency. Allocative efficiency occurs when resources are distributed in a way that maximizes consumer and producer surplus, while social efficiency additionally considers externalities. A well-designed diagram can demonstrate how the introduction of solar panels can lead to improved social welfare by decreasing reliance on fossil fuels and promoting sustainable energy practices.

References

• Australian Bureau of Agricultural and Resource Economics and Sciences. (2023). Agricultural Commodities.
• OECD. (2023). Agricultural Outlook 2023-2032.
• Australian Energy Market Operator. (2023). Electricity Statement of Opportunities.
• Reserve Bank of Australia. (2023). Monetary Policy Statement.
• CoreLogic. (2020). National Home Value Index.
• City of Darwin. (2021). Housing Strategy.
• Australian Renewable Energy Agency. (2023). Solar Energy in Australia.
• Productivity Commission. (2023). The effects of urban planning on housing supply.
• Australian Competition and Consumer Commission. (2023). Retail Electricity Pricing Inquiry.
• Environmental Protection Agency. (2023). Externalities in Energy Production.