ARE120 Homework 5 Solution

ARE120 Homework 5 Solution

Author: semona henkova

ARE120 Homework 5 Solution


ARE120 Homework 5 Solution

On the island of Tasmania, suppose the milk market is characterized by the following conditions: (a) freely transferable marketing quotas apply to milk sold for consumption as fluid (fresh) milk in Tasmania, at a price Pf, (b) additional milk production, beyond the fresh milk quota, is sold at the price for milk used in manufacturing, Pw which is lower than the fluid milk price, (c) Tasmania is a price taker at the world market price for manufactured dairy products, and (d) the fluid milk premium is sustained by natural protection provided by Bass Strait (full of sharks) between Tasmania and mainland Australia, and an embargo on fresh milk imports from mainland Australia.

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