Question 1 Consider a rice farmer planting two (2) types of rice, white and brown rice, concurrently in his rice field using the same resources and technology and harvesting them at the same time. Given that consumers like to mix both white and brown rice in their daily consumption, explain the effect on the white rice market when the price of brown rice increases. Support your answers with suitable white rice market diagrams. Consider a farmer that produces both white and brown rice. It is discovered that the demand for brown rice is relatively more inelastic compared to the demand for white rice. Initially the price of both white and brown rice is the same and the farmer produces the same quantity of white and brown rice. Now there is an improvement in agricultural technologies that affect both white and brown rice equally. Employ the demand and supply model to compare and contrast the effects on the equilibrium price and quantity of both white and brown rice from the technological improvement. Explain the effects on the farmer’s revenue from both types of rice after the change in technology and support your answers with one suitable market diagram. In addition, discuss the situation where the improvement in technology may be detrimental to the producers. It is discovered that the consumption of white rice is linked to many cases of diabetes. To discourage the consumption of white rice, the government is contemplating two (2) policies, an effective price floor on white rice and a tax imposed on the producers of white rice. Appraise the efficiency of the two (2) policies and compare and contrast their welfare effects, assuming that both policies resulted in the same price and quantity of white rice in the market. Support your answer with a suitable white rice market diagram.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question 1 Consider a rice farmer planting two (2) types of rice, white and brown rice, concurrently in his rice field using the same resources and technology and harvesting them at the same time. Given that consumers like to mix both white and brown rice in their daily consumption, explain the effect on the white rice market when the price of brown rice increases. Support your answers with suitable white rice market diagrams. Consider a farmer that produces both white and brown rice. It is discovered that the demand for brown rice is relatively more inelastic compared to the demand for white rice. Initially the price of both white and brown rice is the same and the farmer produces the same quantity of white and brown rice. Now there is an improvement in agricultural technologies that affect both white and brown rice equally. Employ the demand and supply model to compare and contrast the effects on the equilibrium price and quantity of both white and brown rice from the technological improvement. Explain the effects on the farmer’s revenue from both types of rice after the change in technology and support your answers with one suitable market diagram. In addition, discuss the situation where the improvement in technology may be detrimental to the producers. It is discovered that the consumption of white rice is linked to many cases of diabetes. To discourage the consumption of white rice, the government is contemplating two (2) policies, an effective price floor on white rice and a tax imposed on the producers of white rice. Appraise the efficiency of the two (2) policies and compare and contrast their welfare effects, assuming that both policies resulted in the same price and quantity of white rice in the market. Support your answer with a suitable white rice market diagram.

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