Microeconomics I
Essay 2024 /25
Government Intervention in the Market for Vapes
Write an essay of no more than 1200 words (no headings or sections) on the following scenarios and questions
Assume a country in which many people use vapes containing nicotine. There are health concerns because of this.
Researchers estimate that :
Supply of Vapes is given by: QS = 0.1P - 2
And
Demand for Vapes is given by: QD = 40 – 0.05P
P is in pence per millilitre [ml] (eg P = 100: = 100 pence/ml = £1/ml)
and:
Qs and QD are quantity of vape (in thousands of litres) supplied/demanded in the country per year
There are 1000 millilitres in a litre.
Eg Q=50 : = 50 000 litres, = 50 000 000 (50 million) millilitres
Assume:
• all vapes are homogenous (no variation in active content)
• the vape market is competitive, and all producers are price takers.
1. Create and explain a diagram showing Demand and Supply curves and showing market-clearing Price (P) and Quantity (Q) and Producer Surplus (PS) and Consumer Surplus (CS). [10%]
The Government imposes a tax on sales (paid by the seller) of Vapes at a fixed rate of 150 pence per ml of vape
2. Create a diagram showing how this tax changes the market-clearing equilibrium. Explain (in terms a non-economist can understand) if / how the tax changes supply and demand curves. [10%]
3. Create a diagram showing the changes in P, Q, PS, CS and Tax Revenue after the tax has been imposed. Calculate and explain:
• price paid by consumers and price received by producers
• changes in PS and CS at equilibrium.
Explain the diagram (in terms a non-economist can understand) [20%]
4. Critically discuss the impact of the tax, highlighting strengths and weaknesses. What effects, in addition to those shown in your diagrams, might occur because of its imposition. [25%]
Researchers discover the relationship between price and demand for vapes used above is incorrect, in fact the Q demanded is given by:
QD = 80 – 0.1P
5. Create a diagram showing (the changes in) demand curve, P, Q and PS, CS and Tax Revenue after the tax has been imposed.
Explain how and why this change will affect the tax incidence compared to the initial result. [25%]
[10%] will be awarded for the quality of the writing and structure. V3.0
Reading:
The primary reading for this essay is Core Chapters 8 and 10, and lectures 13 - 15.
Please ensure you have read those chapters and watched those lectures first.
You can also refer to other textbooks, for example:
• Acemoglu et al Chapters 9 (available via Kortext, via Bb)
• Goolsbee et al., Chapter 17 (available via Kortext, via Bb)
Some additional research/reading could inform. your answer to Q4.
Questions?
1. Check this document, including the FAQ below
2. Join the Zoom session on Mon 2nd December at 5pm
(you can post questions for that Zoom session via this Padlet)
3. After the Zoom session, use Piazza
Note 1: Reading
This is an opportunity to develop and exhibit your understanding of, and ability to explain, Econ concepts.
We are not expecting you to do a huge amount of additional research on the topics covered by the essay. Some additional research/reading could inform. your answer to Q4.
The expectation is that you use the concepts and frameworks covered in Micro I, especially Core Units 8 and 10, lectures 13-15, Tutorial 6.
Note 2: Diagrams
Your diagrams must be electronically produced (see FAQ below).
They can either be precise (eg created in Excel) or schematic (like the example below) with the values approximately to scale (no difference in marking based on which type you use).
Guidance and FAQ
You should submit your essay via Turnitin on Blackboard (Assessment folder) by
2pm Wednesday January 15th
2025
Late submission incurs mark penalties.
The essay should be anonymous – your names should not appear anywhere, only your registration ID number.
Marking Criteria
You are strongly advised to consult the Economics UG marking criteria (See Essay folder on Bb)
My Learning Essentials
You are strongly advised to consult the advice and resources (direct and virtual) regarding academic writing and referencing available at MLE:
https://www.library.manchester.ac.uk/training/my-learning-essentials/
Length
Maximum Length: 1200 words excluding references (this is a precise limit, no + X%)
There is a penalty for exceeding the word count.
A word count should be included before the Reference Section (see later in this document)
Further guidance is appended.