MAE101-Economic Principles

Question 1:  

In October 2019, the government of the Philippines imposed a price ceiling on 120 prescription medicines which included medicines for hypertension, diabetes, cardiovascular disease, chronic lung diseases and major cancers. It is expected that prices for these medicines will have an average price reduction of 56% from prevailing market prices.  

What effect is this likely to have on the market for prescription medicines?  What will happen to the quantity of prescription medicine demanded?  What will happen to the quantity supplied?  Who gains?  Who loses? Draw a diagram to support your answer.

Question 2: 

In November 2019, as a result of the African swine fever crisis, one half of the pigs in China became sick and needed to be destroyed. Source: Brown, Tanner (2019). 

Using supply and demand analysis graph and explain what effect the African swine fever crisis will have on the market for pork in China and on the market for beef in China.

Question 3: 

In the last few years the high rate of Chinese economic growth has seen a sharp increase in Chinese demand for paper. At the same time many large paper producers have closed in the US as a result of the high cost of the materials from which paper is made leading to reduced profits for these producers. Sources:  Australian Publishers Association (2019). See link: https://www.publishers.asn.au/news/paper-price-hike-aperfect-storm-for-australia 

What are the effects on the equilibrium price and quantity of paper as a result of the situations described above? Please note that you need to discuss the market for paper in general and not trade issues between China and the US. Draw a diagram to support your answer. 

Question 4: 

In September 2019 Saudi Arabia significantly reduced the production of oil as a result of drone attacks on two oil refineries in the country which led to the reduction of 5.7 million barrels of crude oil per day from the two refineries.  Source: Middle East Monitor (2019). See link: https://www.middleeastmonitor.com/20190915-saudi-arabia-temporarily-cuts-oil-production/ 

At the same time the demand for oil is generally considered to be price inelastic. See for example, Plumer, Brad (2016) 

If the demand for oil is price-inelastic, the reduction in oil production will increase the revenue received by the countries that produce oil. Explain why this is so. Use a diagram to support your answer. 

Question 5: 

From April 2020 the UK government plans to introduce a sales tax on all products bought online from overseas. Please note this is not a tariff – it is a tax. The tax will be 2% of the value of the products sold in the UK. This tax is collected from online sellers such as Amazon or ebay. Source: BBC (2019).

Consider the market for online products. The initial market equilibrium is at 10 million products sold per year at an average price of $500 each. Then, the UK government imposes a tax on the market, collected from sellers (for example Amazon and ebay). The tax is 2% per item (each item has an average price of $500). 

Show the effect of this on the market for online products. Show the effect on consumers of online products, on the online sellers and on the government. Does the UK economy gain or lose as a result of the tax? Explain why. Use a diagram to support your answer.