Reference no: EM132395530

ECON1056 Price Theory - Industry Analysis Assignment - Semester 2, 2019, RMIT University, Australia,

Australian Food Market Case Study

Introduction - Decision-makers in government rely on the advice of experts when formulating policy or discharging their statutory responsibilities. In this assignment you will take the role of an expert economist, employed by a government department. An expert economist's role in the government decision-making process is two-fold:

• Analysis: Experts use specialist knowledge and skills to analyse the likely outcomes of different policy options. Experts then evaluate the policies against the government's objectives and statutory obligations.
• Communication: Experts must communicate their findings to ministers and senior public servants, who, in many instances, do not share the expert's specialised knowledge.

This assignment will assess your aptitude in both of these domains. You will analyse a policy scenario detailed in section 2. Your Industry Analysis will form the basis for a policy brief a short report summarising your recommendations and rationale. The policy question is open-ended. This is extremely typical of the tasks you will encounter in the workplace. The challenge is to approach an open-ended question in a systematic and logical manner, drawing on your technical expertise as an economist.

Task -

You work for the Department of Environment and Natural Resources (DENR). The Minister for the Environment is aware of the LBA and TA's concerns, and wants you to:

• Evaluate the likely market outcomes under a single-price and a two-price policy (i.e. uniform pricing and price discrimination).
• Recommend whether the department should introduce a single-price policy or a two- price policy for the Ecological Tourism Licence.
• Recommend the price that the government should charge for the annual Ecological Tourism Licence fee.

You need to evaluate the policies and make your recommendations based on the minister's policy priorities. The minister's office informs you that these priorities are:

1. To ensure that the Ecological Tourism Licence creates benefits for stakeholders; and

2. To use the annual Ecological Tourism Licence fee as a source of government revenue.

The relevant stakeholders are tourists, locals, and the tourism operator. Note that the licencing policy prevents the government from imposing any other form of market regulation, such as price caps.

Required Steps -

Steps 1 - 7 Describe the equilibrium in the market under uniform pricing.

Step 1: Derive the combined demand function for the market.

Step 2: Using the information provided in the scenario, derive the tourism operator's total cost function. Exclude the cost of the annual licence fee.

Step 3: Assume that the profit-maximising price is above the \choke-price" for locals.

Find the profit-maximising quantity and price (Q and P). Is this price consistent with the assumption?

Step 4: Assume that the profit-maximising price is below the \choke-price" for locals.

Find the profit-maximising quantity and price (Q and P). Is this price consistent with the assumption?

Step 5: What is the level of producer surplus under uniform pricing?

Step 6: How many tickets will be available to locals, and what is the level of local consumer surplus (CSL)?

Step 7: How many tickets will be available to tourists, and what is the level of tourist consumer surplus (CST )?

Steps 8 - 10 Describe market conditions under price discrimination.

Step 8: What is the profit-maximising quantity and price for the local market (QL and PL)? What is the level of consumer surplus in the local market (CSL)?

Step 9: What is the level of consumer surplus in the tourist market under price discrimination (CST )? Clearly reference any results or calculations from previous steps.

Step 10: What is the level of producer surplus under price discrimination?

Attachment:- Price Theory Industry Analysis Assignment File.rar