Supply and demand of solar energy in australia

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QUESTION 1

PART A: 

  1. The PPC is a model that shows the tradeoffs associated with allocating the resources between the productions of different goods (Tucker, 2008). It is the graphical representation of all the bundles of cars and computers available to be produced within the given resources of a nation. At bundle A, the nation is able to produce 450 cars and 0 computers. While on bundle B, it can produce 100 computers and 420 cars within the given resources. Any bundle outside the PPC is unachievable and any bundle within the curve is undesirable as it doesn’t utilize all resources to maximize the production levels  (Tucker, 2008).
  2. For the production of first 100 computers, the nation has to give up production of 30 cars. Hence, at bundle B, it will trade off 30 cars production for achieving the production of 100 computers. The opportunity cost is thus 30 cars.
  3. If the nation decides to produce 200 computers and 300 cars, the bundle will fall inside the PPC. For any bundle inside the curve, the nation would be producing less of both cars and computers while being below full potential capacity. This will mean that nation isn’t utilizing its resources efficiently  (Tucker, 2008).
  4. The nation can achieve the bundle falling outside the curve by improving the technology. With improvement in technology, the PPC will shift outwards if the technology is implemented for both cars and computers  (Tucker, 2008). However, given the improvement in cars production only, the PPC will shift from Y-axis only. The effect can be seen below where the PPC has shifted from y-axis i.e. cars production only given the advancement in technology.
  5. The law of increasing opportunity states that as the production of one good is increased, the opportunity cost of producing additional good also increases  (Tucker, 2008). This law is easily depicted by PPC as the curve illustrates that in order to increase the production of one good (car), it would require reducing the production of the other good (computers). In order to produce more cars, the nation will have to give up more n more computers at each level. As can be seen from the figure above that at bundle A the opportunity cost was 30 cars for producing 100 computers while for producing extra 150 computers, the nation had to give up production of 90 cars and so on. The law of increasing opportunity is fundamental to the production of any bundle of goods. With increasing quantity production, the opportunity cost rises hence it is depicted by convex shape of PPC  (Tucker, 2008).

PART B

The two objectives are not mutually consistent. If the parking fee is lowered by the council in specific CBD area, it will only lead to chaos and congestion mainly because of inelastic demand for parking in the CBD area. The consumers will willingly pay higher prices for good parking and the revenue from parking in CBD will not rise, instead it will fall. In the CBD area, the fee should remain high and strong laws must be enforced.

On other hand, the demand for the parking in Beaches at Council is elastic because of number of beaches. If high prices will be kept, people will look for other areas for parking and congestion will be caused. Hence, the fee should be kept low there. Even distribution will be the resultant as people will park away from CBV due to limited space. If CBD fee is kept low, revenues will fall and if people are discouraged to park in CBD area, chaos will incur. The solution seems to expand parking and make areas for parking so that demand becomes inelastic.

QUESTION 2

PART A

  1. If the solar power capacity is expected to get doubled for Australia, its supply will shift to the right. It means that the supply has increased (Ippolito, 2005).  See figure below for the effect:
  2. Over time, with excess of solar supply in the market, the prices of the energy will fall. Hence, people will start buying more that will push the upward pressure on prices  (Ippolito, 2005). As a result, the prices will start increasing and reach the old equilibrium point. See figure below to understand this phenomenon.
  3. When the demand curve for solar energy rises, the government will start imposing taxes on coal. This will rise the price paid by the consumers  (Ippolito, 2005). Also, since both are substitutes, the price rise in one product (coal) will shift the demand curve of the other good (solar) to the right. See figure below:

Due to impose of taxes in coal market, the prices paid by consumers and received by producers will increase so consumers will shift to solar power as a substitute good  (Ippolito, 2005).

PART B

If minimum prices for the goods are set by government, it will create the surplus in the market. Prices set by government are usually higher than the equilibrium prices and supplier will increase the supply and consumer will decrease the demand (Morton & Goodman, 2005). In this case, the consumer welfare and producer welfare will decrease with total decline in welfare. Government shouldn’t intervene in market and leave the mechanism on the market itself.

In the above diagram, we can see that at the minimum price, the supply is more than demand and there is excess supply (Q3 – Q1) due to higher price. In order to keep the equilibrium price and remove surplus, government shouldn’t intervene and at P1 the demand and supply will be equal to each other without any excess or shortages in the market  (Morton & Goodman, 2005).

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