ECON7200 Economic Principles

Short and concise answers are preferred. Given the nature of the questions in this assignment, answers
should target about three pages length but not exceed four pages (12pt Times New Roman, double
spaced) in total, including graphs. For further info check Assignment 1 instructions again.
1. Read the following article excerpt:
Sweetened-beverage sales in Seattle dropped 30% after soda tax, new study says The Columbian
https://www.columbian.com/news/2020/feb/23/sweetened-beverage-sales-in-seattle-dropped-30-
after-soda-tax-new-study-says/
By Daniel Beekman, The Seattle Times
Published: February 23, 2020, 1:45pm
Sales of sugar-sweetened beverages at stores in Seattle dropped about 30.5% in the months after the
city adopted a tax on such beverages, says a new study that also looked at sales at stores in Portland,
which has no such tax.
Sales in Portland declined only 10.5%, suggesting sales in Seattle dropped much more than they would
have without a tax, according to the peer-reviewed study by University of Illinois at Chicago
researchers.
The study’s results are the first to measure the impact of Seattle’s tax on beverage sales in the city,
and they may bolster claims by supporters that the controversial policy is working as intended.
“From a public health perspective, this is good,” said Jay Krieger, a University of Washington professor
who heads the nonprofit Healthy Food America. “People are purchasing less sugary drinks, and we
know that sugary drinks are associated with heart disease, diabetes, high blood pressure and strokes.”
Seattle’s tax of 1.75 cents per fluid ounce, which took effect on Jan. 1, 2018, is charged to distributors
of sugar-sweetened beverages. Distributors can pass the tax on to stores, and stores to consumers.
Proponents said the tax would reduce soda sales and raise money for health and education programs.
Your task 1: Explain, with the aid of a diagram, how a soda tax such as the one described above would
impact consumers, producers and society more generally.
Your task 2: Comment on whether or not you support such a tax and why.
2
2. Isaiah runs a bakery and has estimated his cost data in an excel spreadsheet. While looking at his
spreadsheet on his phone, he accidently deleted some of the data with a few accidental swipes.
His cost table is given below, with five spaces where he is missing information identified as A, B, C, D
and E. All numbers are in dollars.
Output AFC AVC ATC MC
10 120 100 220 —
20 A B 150 80
30 40 90 130 90
40 30 C D 130
50 24 108 132 E
The marginal cost figures have been calculated based on the discrete change from one row to the
next. For example, 80 is the MC calculated going from Q=10 to Q=20.
Your task 3: Find all the missing data. But very importantly, clearly present the maths you are using
and the definitions you are using to relate the various cost curve concepts.
Your task 4: (This task is not related to your Task 3) Sketch a general average total cost curve, an
average variable cost, and a marginal cost curve all on the same diagram.
You do not need to include numbers or make it exactly to scale.
Make sure however that the curves have their usual shape, and that your diagram shows the correct
relationships between the curves.
(Of course, this must be your own diagram so that we can assess whether you can draw it without
error. If you copy-and-paste a diagram from the internet or from another student, you will not receive
any marks.)
3. Read the following excerpt from a news article, then respond to the task below.
Macadamia nuts double in price as growers struggle to keep up with demand
ABC Wide Bay By Sarah Jane Bell
Posted 11 Mar 2019, 6:10am
https://www.abc.net.au/news/2019-03-11/health-food-trends-drive-surge-inmacadamiaprice/10886728
If you are a fan of snacking on Australia’s only commercially grown native nut — the macadamia —
you may have noticed prices rising on supermarket shelves.
3The Australian Macadamia Society said the price consumers were paying for the nut had doubled in
the last 10 years, from $25 per kilogram to about $50 per kilogram.
Market Development Manager Lynne Ziehlke said part of the pricTASKe rise was due to growers
getting paid more — and because of the rarity of the product.
“In terms of tree nuts globally, macadamias [only make up] 1 to 2 per cent of global tree nut
production, so there actually aren’t a lot of macadamias around in the world, so that’s one of the
drivers,” Ms Ziehlke said.
Despite the price rise, consumer demand was also growing.
The industry body predicted the number of nuts that would be sold in Australia this year would beat
last year’s record of nearly 4,000 tons.
Ms Ziehlke said its popularity had been driven by health food trends.
“This rise in consumer interest in plant food is so palpable and consumers are eating more whole
foods … a lot of this is driven by vegans, coeliacs, and consumers looking for dairy alternatives,” she
said.
“You have seen a lot of niche products on the Australian market in the last year or so. There’s no doubt
in my mind that there is going to be very strong growth in that space as more product becomes
available.”
The harvest has just begun in one of Australia’s key growing areas, Bundaberg, and the national
forecast is looking good.
This year’s crop was expected to produce 53,500 tonnes in-shell, topping the record-setting 2018
harvest.
Your task 5: After justifying the appropriateness of its use, use the model of perfect competition to
support a discussion of the short run and long run prospects for firms producing macadamia nuts, in
response to the changed demand conditions.