Question 1 A newly formed dance group, Mega Max has
released a single, Economexy. Assume that the download price for
their new single is $1.20 and the number of downloads per day
world-wide is 5,000. What will happen to the market for this single
if the following four events occur: (i) The population of dance
music fans decreases AND the productivity in the music production
increases. (ii) Dance fans switch away from dance music to R&B
music AND the price of MP3 players increases. (iii) The number of
other dance singles decreases AND income increases. (iv) One of the
artists in Mega Max is rumoured to have died AND the
download price of rival groups Techno New Syd Wests single, Bang,
decreases substantially to $0.20 . Each event (i, ii, iii and iv)
occurs independently (ceteris paribus). For each of the following
events, explain what will happen to the equilibrium price and the
equilibrium quantity for the download of Economexy. For each part,
you must: Draw an appropriately labeled diagram, Show the
adjustment process from the original to the new equilibrium, And
a detailed written explanation of this adjustment process. Question
2 A. Show how the imposition of a tax on either the buyers or
sellers in a market has the same effect on equilibrium price and
quantity. Make sure you use appropriate diagrams in your answer. B.
Assume that the demand and supply curves in a market for cigarettes
are represented by the following equations: P = 200 0.5Q and P =
0.5Q. The government then decides to impose a tax of $20 per unit
on sellers in this market. Assume that the market is already
efficient prior to the imposition of the tax. a. Calculate the
equilibrium price and quantity before the imposition of the tax,
and draw the demand and supply curves in this market, showing all
relevant information. b. Show what the tax does to the market in
the diagram drawn in (i) c. Calculate the equilibrium price and
quantity after the imposition of the $20 per unit tax. d. Calculate
the tax revenue collected by the government, and the tax incidence
of this tax on buyers and sellers. Question 3 Assume the production
of coal involves the generation of a negative externality. A.
Explain how the equilibrium level of output would be determined in
the market for coal, assuming no attempt is made to internalise the
externality. Is that equilibrium efficient? Use a diagram(s) as
part of your explanation. B. What is a Pigovian Tax? Explain how
the imposition of a Pigovian Tax could alter the equilibrium in
this market. How does the tax impact on the efficiency of this
market? Use a diagram(s) as part of your answer. You are free to
augment the diagram you used in (a) in your answer to (b). C. What
other solutions could be used to remedy this negative externality?
You do not need to describe these remedies in detail. Question 4
Assume that there are two categories of goods: protein shakes and
all other products. A. Show using diagrams how a consumers demand
curve for protein shakes can be derived from an indifference map
and a budget constraint diagram. Make sure you explain your answer
in detail. B. Using a different set of diagram/s deconstruct the
price effect into the substitution effect and the income effect.
Take note to define each effect.