Assignment Microeconomics 200

Microeconomics 200 Assignment

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Unit: Microeconomics 200

Tutorial Day/Time: Wednesday 15.30

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Introduction

Recently, the Australian government considered employing a new policy, the Carbon Price mechanism, which can be simplified as being a carbon tax imposed to firms to control their emanations of greenhouse gases which cause global warming (Hawker Britton 2011).The following analysis will examine some of the repercussions of this new policy such as the effect of rising energy prices on the Australian households, the effect of the increases in costs of traditional sources of energy on their energy consumption patterns, the effect of the rise in government payments such as increases in pensions, allowances and family payments and finally, a sum up of how all this affect the potential effectiveness of the policy.

Section (i)

Fundamentally, consumers’ choices depend on their preferences and their budget constraints. The satisfaction of consumers is often known as utility and is defined as a “term referring to the total satisfaction received from consuming a good or service.” (What does utility mean n.d.). Graphically, the consumers’ utility is represented by indifference curves which are downward sloping and convex. Moreover, for a rational person, indifference curves never intersect, and the higher it is, the higher utility is derived from the various bundles of goods they represent. In order to construct a proper indifference curve model, three assumptions need to be taken into account. Firstly, preferences are complete, which means that when opposed to different basket of goods, consumers are able to compare and rank them depending on their preferences. Then, preferences are transitive. It implies that if basket A is preferred to basket B, and basket B is preferred to basket C, then basket is automatically preferred to basket C. This is linked to the fact that the indifference curves never intersect themselves. Finally, there is the...