ECON90077 Economics of Markets and OrganisationsECON90077 Economics of Markets and Organisations ASSIGNMENT 1 (10%) Question 1 Please refer to Extract 1:
Question 2 Please refer to Extract 2:
Question 3 Please refer to Extract 3: Uber is a service that matches private drivers to passengers that are seeking a ride from one place to another. Assume that the market for Uber rides is perfectly competitive.
EXTRACT 1 Mining slump hits machine makers BOB TITA Used machinery is flooding the second-hand market, piling more pain on equipment makers battling slack demand from customers that mine, move or refine commodities amid a global slump in the value of everything from coal to corn. Instead of buying a new $US500,000 bulldozer or $US300,000 excavator, many construction firms and other equipment users are renting or entering longer-term leases for machines to expand their fleets or replace worn out equipment, dealers and analysts say. Dealers, in turn, are keeping smaller inventories of new wheel loaders, backhoes and other machinery. That is hurting sales for Caterpillar, Volvo, Deere and other manufacturers. Machinery gluts can be lengthy because such high-price equipment can last a quarter-century or longer. The strong US dollar also is dampening demand from developing African and Asian markets that once snapped up used machines. "There's a lot of machinery sitting around," said Bill Yurkovic, used equipment manager for Cleveland Brothers Equipment, a Caterpillar dealer in Pennsylvania and West Virginia. Demand there for dump trucks and other large earthmoving machinery crashed along with prices for the coal and natural gas the region produces. "It's as bad as it's been in my 30 years," Mr Yurkovic said. "A lot of renting. Not a lot of buying." With so much equipment up for grabs, used-machinery prices are down 10 per cent from a year ago, Caterpillar says. Its dealers also are under pressure to keep up with price discounts on competitors' new equipment. EXTRACT 2 POOR SMOKERS ARE AN EASIER TARGET THAN MINING COMPANIES JUDITH SLOAN, CONTRIBUTING ECONOMICS EDITOR Don't imagine that the government wants tobacco users to actually give up their habit THE government obviously thinks that it is much easier to raise money from smokers than mining companies In the next four years, the government expects to raise nearly $39 billion from excise on tobacco products. By contrast, the minerals resource rent tax will bring in $5.5bn across the same period For every dollar extracted from mining companies in the form of the MRRT, the Labor government expects to collect $7 from smokers. And don't be fooled that the government wants smokers to give up their habit. The estimates of future excise revenue are firmly predicated on the basis that most smokers will not quit Technically speaking, the price elasticity of demand for cigarettes is low and the government knows this. As the Treasury paper on issues in tobacco taxation states, "applying higher taxes on goods which have relatively low price elasticities is optimal as these taxes are less distortionary, as their effects on consumer preferences are relatively minor". Tell that to the smoking tradie in western Sydney, I say. Even with the price of a packet of cigarettes expected to increase by more than $5, the Cancer Council estimates that only 200,000 smokers will quit, out of more than three million regular smokers In other words, the number of smokers will fall by less than 7 per cent even as excise on tobacco products increases by more than 50 per cent in the next four years EXTRACT 3 The New York Times ‘In New York post-Sandy, the lack of subways can be just as troubling as the lack of electricity.... Plenty of other people in New York are turning to car services this week. But Uber, a San Francisco-based start-up with operations in most major cities in the United States, said it was struggling to get enough cars on the road to meet demand. On Wednesday morning, it imposed a special “surge” fee — a rate of at least double the normal fare. Several New Yorkers didn’t take the price hike lightly. They complained on Twitter.... Travis Kalanick, Uber’s chief executive, said in an interview that the higher fee was necessary to give more drivers an incentive to get onto storm-ravaged roads and squeeze through traffic to pick up people for rides....’ Extra information on doing assignment 1 Some general hints The objective in this assignment is to answer the questions, so the most important piece of advice is to do what the questions are asking. For example, several of the questions ask you to apply the demand/supply model to answer questions about changes in market outcomes. This means that to answer these questions you should explicitly use the concepts of demand and supply, and equilibrium price and quantity traded. You don’t need to state definitions of any of the concepts such as demand and supply, or equilibrium. Assume that your tutor knows what these concepts mean. Instead, the assignment is trying to test your knowledge of the concepts by seeing how you apply them in answering the questions. To complete the assignment the only reading you should need to do is subject videos and notes, the relevant sections of the textbook, and the excerpts from the articles included with the questions. Marking criteria Three main factors will be considered in marking your assignment:
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