Ways in Which the Australian Government Can Curb the Use of Illegal Drugs - Assignment Example

Assessment Name Number Course Tutor Date Question 1 a) Pharmaceutical drugs have inelastic demand, while computers have elastic demand. This implies that demand of computers in the market is more sensitive to price changes compared to pharmaceutical drugs. When there is a technological advancement the supply of the both the pharmaceutical drugs and computers double. The prices of pharmaceutical drugs and computers in both markets will subsequently decrease. This is because the technological advancement would increase the production of pharmaceutical drugs and computers thereby increasing the supply of both the pharmaceutical drugs and computers in the market. This is indicated by a shift to the right of the supply curve from S1 to S2, as illustrated in figure 1 and figure 2 below. Using the old equilibrium price at point A, there will be a surplus of pharmaceutical drugs and computers in the market, since the supply for the products is more than the quantity demanded. Consequently, the price of pharmaceutical drugs and computers will have to decrease to the new equilibrium price point B, while the quantity demanded will increase from Q1 to the new equilibrium quantity Q2 to eliminate surplus the market. Figure 1 Figure 2 b) As a result of the technological advancement, the pharmaceutical drug experiences a larger price change than computers. This is mainly due to the inelastic demand of pharmaceutical drugs, such that to attain the new equilibrium, the change in price of the pharmaceutical drug is larger than that of computers. On the other hand, computers will experience a larger change in quantity demanded than that of pharmaceutical drugs. This is because computers have an elastic demand and therefore, a small change in price produces a relatively large change in the quantity demanded. c) As indicated in figure 1 and figure 2 above, due to technological advancement the supply of pharmaceutical drugs and computers have doubled. Consequently, the equilibrium price decreases, while the equilibrium quantity demanded increases to eliminate surplus of pharmaceutical drugs and computers in the market. The increase in the quantity demanded of the two products implies that there is an increased consumption of pharmaceutical drugs and computers in the market. As a result of decreased prices and increased consumption, the total consumer spending for pharmaceutical drugs and computers will increase. Question 2 a) An opportunity cost is defined as the cost of an alternative course of action that has to be forgone to be able to pursue another action. It is basically the benefits that could have been received if the alternative course of action was taken. For instance, in the given case scenario to open a hardware that would cost $500,000 per year to rent and stock the hardware, one would have to quit his accounting job. Therefore, the opportunity cost of opening and running, the hard ware is the accounting job that has to be foregone. b) The opportunity cost of running a hardware store for a year is the $50,000 per year job as an accountant. The cost of rent and stock of the hard ware is $500,000 per year. Therefore, if $510,000 worth of merchandise from the hardware is sold in a year, the profit/ gain generated from the hardware is $10,000. This implies that the opportunity cost of the $50,000 per year job as an account is running opening and running a hardware that will generate a profit of $10,000 per year. The opportunity cost of running a hardware store is $50,000, while the opportunity cost of the $50,000 per year job as an accountant is $10,000 per year profit from running the hardware store. Therefore, the opportunity cost per year for running a hardware store is higher. Hence, the hardware store should not be opened, if one has to quit the $50,000 per year accountant job. c) Some of the fixed costs include: rent, insurance premiums and loan repayment. These costs are said to be fixed costs because regardless of the quantity of output the fixed cost do not change. d) Some of the variable costs include: credit card fees and fuel cost. These costs are said to be variable costs because they change depending on the variation of the production related to these costs. For examples, credit card fees will change depending on the number of credit card transaction made. Similarly, fuel cost will change based on the distance travelled assuming the price of fuel remain constant. Question 3 a) When the school holiday ends, the price of motel accommodation will fall. Typically, during the school holidays, the demand for motel accommodation is higher because of students and families travelling for holidays. However, when school holiday ends, the demand for the motel accommodation subsequently decreases. As a result, the demand curve shifts to the left from D1 to D2, as indicated in figure 3. With the decrease in demand for motel accommodation, there would be a surplus in the motel market if the price of the motel accommodation remains at the original equilibrium price of $150. This is because the supply of the motel accommodation would be more than its demand. Therefore, the price of accommodation at motels would subsequently have to fall to the new equilibrium price of $ 60 per night as a result of the surplus in the market. Figure 3 The fixed cost including government taxes, insurance and depreciation is $75 a room per night. This implies that regardless of whether the motel management decides to rent out the rooms or not, the motel will incur the fixed cost or $75 a room per night. The marginal cost of renting out a room is $40 per night, while the new price of the motel accomodation is $60 per night. Therefore, the marginal cost is lower than the price of renting out each room per night by $20. Hence, the motels would still be better off renting out the rooms at $60 per night during the off season. b) Two examples of price discrimination is as discussed below; (i) Air travel and time of departure: Usually, air travel companies charge different prices for the air tickets based on the season and also time of travel. During school holidays, the air travel companies charge higher prices for their flight because of the increased demand. In addition, during Monday to Friday, the flight charges are usually higher than the flight charges during the weekend. This is mostly because of the perception that most business people make trips from Monday to Friday, and they would rarely have an option of changing the time for their travel plans. (ii) Quantity purchased: this is another form of price discrimination is which consumers are charged different prices depending on the quantity consumed. For example, for electricity consumption, the consumers could be charged higher tariff for the first 100 units consumed, subsequently, the additional units above 100 units are charged at a lower tariff. Price discrimination is mainly done to maximize the profits for a business organization. Question 4 a) There are several ways in which the Australian government can curb the use of illegal drugs in the country. An appropriate way would be to tighten the government regulation policy that will prevent the import of illegal drugs into the country (Ball & Seidman, 2011). Therefore, if the Australian government increases the number of custom inspectors and police devoted to monitoring and preventing importation of illegal drugs, the supply of the illegal drugs in Australia will decrease. This is because the increased government regulation policy on import of illegal drug subsequently reduces the supply of the illegal drugs into the country leading to a shift in the supply of illegal drugs in Australia (Hairault & Kempf, 2002). This is indicated by a shift to the left of the supply curve from S1 to S2, as illustrated in figure 4. Using the old equilibrium price (P1) at point A, the demand for illegal drugs is more than the quantity supplied. Consequently, the price of illegal drugs will have to increase upwards to the new equilibrium price (P2) at point B, to curb the shortage of illegal drugs in the illegal drug market. Figure 4 b) There have been many debates on the effectiveness of banning or criminalization of drugs aimed at reducing related crime. The general perception is that such harmful drugs and substances should indeed be banned so as to protect the society from the negative effects associated with such drugs and substances (Weiss, 2008). However, in most of the countries where certain drugs have been banned, many people are involved in the organized crime of selling the banned drugs and substance. Consequently, this creates more problems including those not related to the illegal businesses. This indicates that the growth of the black market consequently leads to the increase of dangerous crime. Therefore, some would argue that the decriminalization of some banned drugs and substance will actually make them safer and subsequently reduce organized crime (Williams & Christ, 2009). This also implies that banning of certain drugs and substance will only increase the drug-related crime. References List Ball, M. K & Seidman, D 2011, Supply and demand, The Rosen Publishing Group. Hairault, J. O & Kempf, H 2002, Market Imperfections and Macroeconomic Dynamics, Springer. Hill, C. W 2008, Global business today, 7ed. NYC: McGraw-Hill. Nafziger, W. E 2005, Economic Development, Cambridge University Press, London. Shim, J. K & Siegel, J. G 2008, Financial Management, Barron's Educational Series. Williams, R & Christ K 2009, Taxing Sin, Mercatus Center; George Mason University Weiss, J. W 2008, Business Ethics: A Stakeholder and Issues Management Approach, Cengage Learning. Read More