Economics Assessment 1 and 2
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# Economics Assessment 1 and 2

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### Question

Assignment 1

Due: 7pm Tuesday, 7 August, 2018 (Week 6)

Weighting: 25%

Note that when you are answering questions that require mathematical calculations, you should provide details as to how the answers were derived. In completing your answers, you should use correctly labelled graphs wherever possible. Always provide a brief explanation of each graph, including how it relates to your overall answer/argument.

Question 1 (10 marks)

1. Joan, who has been a university student for a year, has just started a new job. She realises that if she works more hours there will be an impact on her grades.  The following is Joan's production possibility table for work and her average grades:
 Choices Production possibilities Grade (%) Work (hours per week) A B C D E 0 20 40 60 80 60 55 45 30 0

From the figures in the table above:

1. Plot the production possibility curve for Joan. (1 mark)
2. Explain the concept of increasing opportunity cost using the production possibility table and curve plotted in Q1ai above.  (2 mark)

iii. If the opportunity cost of Joan increasing her grade was constant regardless of how many hours she worked, what would be the shape of her production possibility curve?  Draw this graph.  Which of the two shapes would be more likely, and why? (2 marks)

1. What would be happening if Joan's combination of her grades and hours of work per week were below the curve as plotted above in Q1ai? (1 mark)
2. How could Joan push her combination of her grades and hours of work per week past the current curve? (2 mark)
3. After a period of good growing weather Australia produced a plentiful wheat crop – does this mean that it will not have a scarcity problem in regards to wheat? Provide reasons for your answer (300 words maximum).    (2 marks)

Question 2 (10 marks)

In February 2018, it was reported that Australia's solar power capacity could almost double in a year.

1. Use demand and supply curves to show the doubling of capacity. (3 marks)
2. Use demand and supply curves to show what is likely to happen to demand over time in response to the capacity increases (see Q2a above). (3 marks)
3. Use demand and supply curves of the solar powered industry and coal-fired power electricity industry to show what is likely to happen to demand and supply of solar power if the government introduces a tax on coal-fired power electricity. (4 marks)

Question 3 (10 marks)

1. Explain in your own words, using demand and supply curves, the concepts of consumer and producer surplus. (3 marks)
2. Using demand and supply curves describe and illustrate what would happen to consumer and producer surplus if solar power capacity is increased. (4 marks)
3. The treasurer, Scott Morrison, has stated that business tax cuts will be good for business and workers. Is this a positive or a normative statement? Provide reasons for your answer (300 words maximum). (3 marks)

Question 4 (10 marks)

1. Complete the table below outlining the demand for hot doughnuts in winter. In your calculations use the midpoint method to calculate the price elasticities. (5 marks)
 Price (\$) Quantity demanded Total revenue (\$) Percent change in price Percentage change in quantity demanded Elasticity value Assessment of Elasticity 0.50 16 1 13 1.50 10 2.00 7 2.50 4 3.00 1

1. Do you think the price elasticity of demand for hot doughnuts in summer would be the same as in winter or would it become more elastic or more inelastic? Explain your answer. (3 marks)
2. What would you expect the price elasticity of demand for cigarettes to be? Explain your answer. (2 marks)

Question 5 (10 marks)

a i. Complete the cost schedule below for a company operating in a free-market (remember that MC and MR values are placed midway between the output figures):

 Output Total Fixed Cost (TFC) \$ Total Variable Cost (TVC) \$ Total Cost (TC) \$ Average total cost (ATC) \$ Marginal Cost (MC) \$ Total Revenue (TR) \$ Average Revenue (AR) \$ Marginal Revenue (MR) \$ Profit \$ 0 100.00 100.00 1 220.00 2 300.00 3 390.00 4 530.00 5 690.00
• marks)
1. If the firm is operating in a perfect market where the market price for the good the company produces is \$150, how many items should this company produce in order to maximise profit? Explain your answer. (2 marks)
2. Graph the average total cost, marginal cost, average revenue and marginal revenue curves. (2 marks)
3. In your own words explain the concept of diminishing returns and describe what will happen to marginal product, total output and marginal cost when diminishing returns start to occur. (2 marks)

TOTAL FOR ASSIGNMENT 1: 50 marks (weighting 25% of total marks for the unit)

Assignment 2

Due: 7pm Tuesday, 11 September, 2018 (Week 11)

Length: 1500 words – (up to 2000 words is permissible)

Weighting: 25%

Requirement:

In February 2017, the Sydney Morning Herald presented the views of some economists regarding the performance of the Australian economy in 2017 (see http://www.smh.com.au/business/markets/economists-deeply-divided-over-australias-economic-path-in-2017-20170207-gu72ev.html). For Assignment 2 you are required to firstly read this article and to then prepare a report on the current (i.e., August/September 2018) state of the Australian economy and compare its performance with state of the economy in August 2017. In completing your report it will be necessary to examine the latest figures and the August 2017 figures for the following four economic indicators – economic growth (GDP), unemployment, inflation and trade (including the terms of trade, the current account, net foreign debt and the value of the Australian dollar). In examining the performance of the Australian economy it will be useful to outline any expected target values that may exist for the economic indicators. Finally, given your analysis, you are asked to highlight three major issues you believe are facing the Australian economy over the next 12 months and why you perceive these as of concern.

Presentation of report

The report should be between 1500 and 2000 words. This word limit does not include the abstract, tables, graphs and reference list.

The report should be word processed using Times New Roman font size 12 with 1.5 line spacing.

TOTAL FOR ASSIGNMENT 2: 25 marks (weighting 25% of total marks for the unit)

### Solution

When there is an increase in the production of a product it will also lead to an increase in the opportunity cost in the making of other product which is in comparison. Referring to the instance, as Joan will invest in the right amount of time in his studies, the more effect will be on his studies. Therefore, it will also increase the opportunity costs as the more time is invested the better grades can be expected in the future.

The constant opportunity cost slope shows that for every hour put into the studies this, will lead to an increase in the grades. The y-axis shows the grades that Joan could achieve, and x-axis shows the time or how many hours Joan has invested. Point B and C shows different and possible variation of the two.

iv) Due to lack of resources, the point will be below the curve. It means that there are less resources such as the right books, the right place to study. This will lead to an effect on the grades and the hours invested in.

v) To have a shift in the curve towards the left (which means an increase), Joan would have to invest in more hours over the week. However, if there is a fall in the grades it would shift the curve to the left due to other constant factors.