Part A Questions Consider the market for airport parking in the city of Melbourne. Suppose that there is: i)improvement in technology that reduces the cost of supplying these parking in terms of more efficient management of daily services ii)increase in demand for parking as more people are travelling in recent times. What will be the effects of these changes, a) on profits made by the airport authority, b) on the effects on market prices and quantities and c) on consumer surplus. As a guideline to the material to be covered and the allocation of marks, your essay should cover the following including relevant diagrams: (a)What type of market would best represent the market for airport parking? Justify your answer. Identify the fixed and variable inputs for producing airport parking. Represent an equilibrium situation for the market and a typical firm in the long run. (3marks) (b)Work through the effects of the decreased cost of supplying parking and higher demand for parking. Represent the effects of these changes via: (5 marks) i)what are the supply side effects? ii)what are the demand side effects? iii)what are the effect of these changes on market equilibrium in short run and long run? (c)What pricing strategies the airport authority might take to maximise profit that will not necessarily reduce social welfare? (2 marks) Part B Case study The objective of the case study is for you to choose an economic activity that creates negative or positive externalities. Using an appropriate market structure show how a market equilibrium will be achieved that gives a different price and quantity compared to the socially optimal quantity. What policy recommendations can you make to improve social welfare through some type of intervention? Explain. Caution: do not use any text book example or an example from the lectures, including, cigarettes, alcohol, and drugs, find your own topic. To choose a particular economic activity you need to read and look around with an open mind and think if this activity creates any externalities. The chosen activity should have some factual basis and cannot be a made up activity. Note that there are marks allocated to style; this has nothing to do with the cosmetics of an assignment, rather that unstructured or poorly drafted responses will be penalised. In the case study you should: a. Introduce the externalities created by the economic activity that you will analyse; b. Briefly describe the difference between the market and optimal outcome in the absence of intervention; c. Explain a single intervention mechanism that will correct the externalities. d. Provide any concluding remarks. Four main factors will be considered in marking your case study: a) Knowledge of economic concepts – For example: Has the answer used the appropriate economic concepts? Does the answer show a thorough understanding of those concepts? b) Quality of analysis and application of economic concepts – For example: Is there a logical and thorough supporting argument or description of how conclusions have been drawn? Have economic concepts been applied in an effective manner in the particular application? Are assumptions clearly described? Is an understanding shown of any relevant qualifications to the conclusion? c) Presentation – For example: Are the writing style and organisation of material such that the main ideas and arguments can be understood? Are diagrams presented clearly and effectively integrated with text? d) Research – Have examples been chosen that have taken some effort to find? What is the quality of evidence supporting arguments that are made?