A. Globally food price has increased during the past year. It is in this context answer the following questions:

(a) Explain why the law of demand applies to food just as it does to all other goods and services. (b) Explain how the substitution effect influences food purchases. Provide some examples of substitutions that people might make when the price of food rises and other things remain the same.

(c) Explain how the income effect influences food purchases and provide some examples of the income effect that might occur when the price of food rises and other things remain the same.

Word limit: 600 words

B. Prices of houses in Australian metropolitan cities, particularly in Darwin, Sydney and

Melbourne are on the rise in recent year, which is mainly due to surging land prices. It is in this context, answer the following questions:

(a) Why is the land price rising in the metropolitan cities and what are the major drivers of rising house prices in these cities.

(b) Using an appropriate diagram, explain your answer in part (a) above.

(c) Is the supply of land in in the metropolitan cities perfectly inelastic? Why? Discuss.

Word limit: 600 words

C. Some Australian state and territory governments have banned or are planning to ban plastic shopping bags due to negative externalities rising from their excessive use.

(a) Describe the externality that arises from plastic containers and bags. What is the best way to avoid or regulate externalities? Discuss.

(b) Draw a graph to illustrate how plastic containers and bags create welfare loss.

Word limit: 600 words (please including relevant inference)