Question

a. In February 2020 it was reported that Australia's solar power capacity could almost double in a year. 1) Use demand and supply curves of solar power to show this doubling of capacity. (2 marks) ii) Use demand and supply curves of solar power to show what is likely to happen to demand for solar power over time in response to the capacity increases. (2 marks) 111) Use demand and supply curves of solar power and coal-fired power separately to show what is likely to happen to demand and supply of solar power if the government introduces a tax on coal- fired power. (4 marks) b. In an attempt to support the solar-powered motor vehicle industry the government decides to set a minimum price for solar-powered vehicles. Do you think this is a good idea? Explain your decision with the aid of a diagram. (2 marks)

Answer 1

Sol .

a.

(i) if the solar power capacity is doubled, then Supply will be shifted to the right. It means that supply increases.

(ii) if the supply curve shift to the right , it would create a excess supply in the market.

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Excess supply will decreases the prices of the goods. So, demand will increases . Demand will increases till it would reach to the old equilibrium .

iii)

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In the market of solar power :

Demand curve for the solar increases as , government imposes the tax on the coal . Which will rises the prices paid by the consumer . And also , both are substitute goods , so , when price of one goods rises , (I.e Fired coal) and demand curve for the solar increases and shift to the right.

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In the market of the fired coal :

government imposes the tax on the coal market , which will rises the prices paid by the consumer and prices received by the producer . so , consumer will shift to the substitute goods . (I.e solar power)

b.

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If the government set the minimum prices for the goods , then it will create a surplus in the market.

As , price set by the government is higher than the equilibrium prices , supplier will increase its supply and consumer decreases its demand.

Consumer welfare and producer welfare will be decreases. So , overall total welfare decreases .

Government should not set the price , but rest it to the market.

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