Question 1: Residents of your city are charged a fixed weekly fee of $6 for rubbish collection. They are allowed to put out as many bins as they wish. The average household disposes of three bins of rubbish under this plan. Now suppose your city changes to a ‘tag' system - each bin of rubbish must have a tag attached to it. The tags cost $2 each and are not reusable, but they don't expire.
What is the likely effect of the tag system will have on the total quantity of rubbish collected in the city? Explain.
Question 2. Imagine an economy in which the only resident is Juliet. She can allocate her daily gardening time between growing carrots or tomatoes. Each hour she devotes to cultivating carrots yields 6 kilos of carrots; each hour in the tomato patch yields 12 kilos of tomatoes.
(i) If the algebraic equation for Juliet's PPC can be written as C = a - bT (where C is the quantity of Carrots and T is the quantity of Tomatoes) , what is the value of a and b?
(ii) Which of the points listed below is efficient? Which is unattainable? Explain.
a. 10 kilos of carrots, 18 kilos of tomatoes.
b. 10 kilos of carrots, 20 kilos of tomatoes.
c. 12 kilos of carrots, 26 kilos of tomatoes.
Question 3: Suppose that, in an attempt to improve health and fitness, the relevant government minister is considering two options:
a. imposing a price ceiling on gym memberships which is below the current price.
b. funding an advertising campaign promoting the benefits of regular exercise.
Use your skills as an economics graduate to argue how supply and demand analysis can be used to show the likely consequences of these alternative policies for the market for gym memberships.
Question 4. Pat and his younger son, Mick, are house painters, who offer both interior and exterior painting services. Their productivity (in square metres per hour) in the two activities is given in the following table.
Interior Exterior
Pat 2 square metres per hour 3 square metres per hour
Mick 3 square metres per hour 6 square metres per hour
They are bidding for a contract to paint a house, 24 square metres inside and 36 square metres outside.
(i)How long will it take to paint the house if they each paint an equal share of the interior and exterior work?
(ii) What is the opportunity cost for Pat if he specialises in interior? What is the opportunity cost if Mick specialises in interior?
(iii) Can they save time (and hence offer a more competitive bid) if they exploit their comparative advantage, with one specialising on the interior and the other the exterior? How much time could be saved?
Question 5. The Tasmanian government presently has a scheme whereby people who have not previously owned a home can access a subsidy of $20,000 provided they buy a newly-built home.
(i) Using supply-demand analysis, what is the likely effect of this policy on the number of houses in Tasmania and the average price? Explain.
(ii) How would your analysis of (i) change if the subsidy were available to all people who buy their first home, whether newly built or not?
(iii) How would the analysis of (i) change if the subsidy were only available to low-income buyers?