Silo Pty Ltd
17794688 LIAO MINLING
17784336 SYED Z RAHMAN
In part one, we study how households, Silo pty ltd. make their decision through the demand and supply curve of the wheat market. In this part, we further focus on the market structure on the wheat market and the study how market failure incurs by the imposition of taxation from the government. Furthermore, we put our eyes on a wider range to look at how GDP, inflation, and unemployment rate change in Australia when the recession MARK II deepens. In wheat market, there are thousands of small firms in the market. Soli pty ltd. is just one of the various firms in the world and holds just a small part of the market share. The wheat product is differentiated by the type, quality, size and place of production, but still are close substitutes of each other. Because the product differentiation, wheat market has a downward-sloping demand curve, which means that firms in the market are able to set their prices by setting their output levels. Furthermore, there are no barriers to entry the market. From the four characteristics of the wheat market above, we conclude that the market structure for the wheat market is monopolistic competition.
Two type of short run economic profit for wheat market Supernormal profit Subnormal profit Soli pty ltd.’s goal is to maximise its economic profit. To do so, it produces the output at which marginal revenue equals marginal cost. A monopolistic competition is in short-run equilibrium when it is producing the profit-maximising output level. However, this does not necessarily mean that the monopolistic is making positive economic profit. As the diagrams show above, monopolistic competition could make supernormal or subnormal in short run depend on whether the average total cost is above the price in the output level that marginal revenue equals to marginal cost. In long run, however, as there is no barrier of entry in monopolistic market, economic profit encourages entry while economic loss incur leaving, the demand curve will finally touch the average total cost at last. As the diagram shows below the average total cost curve will touch the demand curve at the level where marginal revenue equals to marginal cost. Thus Soli pty ltd. will make normal profit in long run.
Long run economic profit in wheat market Normal profit When the government introduces a tax on fertilizer used in agriculture due to runoff damages to rivers and streams, the supply will increase because less supplier are willing to supply the wheat as the cost of supplying it increase. Thus the supply curve will shift to left as the diagram bellowed showed. Therefore, the quantity supplier of wheat on the market will decrease from Qo to Q1 while the market price of wheat will increase from Po to P1. The pink region is the consumer contribution to the imposition of taxation while the blue region is the supplier contribution. If the demand of wheat is inelastic, the consumer contribution is more than supplier contribution, while if the demand of wheat is elastic, the supplier contribution is more than consumer contribution. The grey region is the dead weight loss incurred due to the imposition of taxation by the government. The involvement of government leads to the inefficient of the allocation of resources which leads to a market failure. The demand and supply analysis of wheat market after the imposition of taxation
As global recession deepens, global demand for Australian products decreases, which leads to a decrease in Australian Current Account (Export-Import). A decrease in revenue of export…