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Warmer Kiwi Homes is a four-year government programme offering grants covering a significant portion of the cost of insulation and heating for low-income homeowners.
On Graph One, above, show the price the home insulation and heating producers receive after the subsidy. Label this price P2.
On Graph One, clearly shade and label:
How will the subsidy impact allocative efficiency in the New Zealand home insulation and heating market? Explain in detail.
Compare and contrast the impact of the home insulation and heating subsidy on consumers and producers. Refer to Graph One and explain:
How does the subsidy impact consumer surplus?
How does the subsidy impact producer surplus?
Why might the price elasticity of demand for heating and home insulation for some low-income homeowners be elastic? Give two reasons.
What is the effectiveness of the subsidy in significantly increasing the number of low-income homeowners who have home insulation and heating? Assume these homeowners have elastic demand.
New Zealand currently does not use price controls for medication. However, in many other countries governments regulate how much a medication can cost. For example, Canada’s Patented Medicine Prices Review Board requires that a new medication cannot cost more than the median price of the drug in other countries. Countries in the European Union use similar pricing constraints.
Source (adapted): https://www.goodrx.com/blog/why-are-prescription-drugs-more-expensive-in-the-us-than-in-other-countries/
How would an increase in demand for this medication result in a higher equilibrium price and quantity? Refer to the relevant numbers from Graph Two and the concept of market forces in your detailed explanation.
If the Government is concerned that increases in demand would make the price for this medication unaffordable for some consumers, then they could impose a maximum price control of $9 per packet.
On Graph Three, show a maximum price control of $9 per packet. Label the price Pmax.
Complete Table One, below:
Compare and contrast the impacts of this price control on consumers, producers, and allocative efficiency. Refer to Graph Three and Table One, and explain:
How does the $9 per packet maximum price control impact consumer surplus?
How does the $9 per packet maximum price control impact producer surplus?
How does the $9 per packet maximum price control impact allocative efficiency?
Indirect taxes and minimum price controls are two policies the Government could use to reduce the consumption of harmful goods.
Use the labels from Graph Four to identify:
the change in consumer surplus
the change in producer surplus
the total tax revenue collected by the Government
the deadweight loss
Use the labels from Graph Five to identify:
the consumer surplus after the minimum price
the producer surplus after the minimum price
the deadweight loss
Compare and contrast the impacts of an indirect tax and a minimum price control on the market for a harmful good. Refer to Graph Four and Graph Five, and explain:
How would both policies impact consumer surplus?
How would both policies impact allocative efficiency?
Which of the two policies would be less beneficial for producers? Why?