Business Economics Assignment
Part A - Microeconomics
Answer any five of the following questions.
Question 1:
(a) Explain and illustrate using suitable diagrams, the impact of external costs and external benefits on resource allocation.
(b) Why does a good or service become a public good or service?
(c) Explain why each of the following examples are either public goods or services, or private goods or services?
(i) A privately owned engineering and material research laboratory undertaking contractual research on weapons development;
(ii) The quarantine service;
(iii) A toll road originally financed through government debt;
(iv) Courses offered by a fee charging privately owned teaching institution that receives some government funding;
(v) Contact lenses.
Question 2:
(a) Suppose the income elasticity of demand for pre-recorded music compact disks is +6.0 and the income elasticity of demand for a cabinet maker's work is +0.6. Compare the impact on pre-recorded music compact disks and the cabinet maker's work of a recession that reduces consumer incomes by 10 per cent.
(b) How might you determine whether the pre-recorded music compact discs and MP3 music players are in competition with each other?
(c) Interpret the following Income Elasticities of Demand (YED) values for the following and state if the good is normal or inferior;
YED = + 0.8
YED = - 3.8
(d) Interpret the following Cross-Price Elasticities of Demand (XED) and explain the relationship between these goods.
XED = + 0.79
XED = -3.5
Question 3:
You are given the following data about two firms:
(a) Complete the two tables above.
(b) Are these firms operating in the short or the long run?
(c) Are these firms operating under perfect or imperfect competition?
(d) What level of output will these firms produce in the short run?
(e) How would you describe their profit positions?
Firm A:
Firm B.
Question 4:
(a) Suppose you own a jewellery making workshop and store. Classify the following items as either fixed or variable inputs for this store over the course of a month, and explain your reason.
(i) The cost of solder;
(ii) The basic minimum wage rate as agreed with the union (workers must be given at least one month's notice if they are to be laid off);
(iii) A Valentines day advertising campaign;
(iv) Overtime pay;
(v) Electricity cost for running the machines for one month;
(vi) Interest on a mortgage for the factory: the rate of interest rises over the course of the month;
(vii) Depreciation of machines due simply to their age;
(viii) Business rates (local government taxes);
(ix) The cost of electricity for running the machines and drills paid quarterly;
(x) Wear and tear on machines;
(b) Baubles and Beads Jewellers produces 100 pieces per day. The total fixed cost for the plant is $4000 per day and the total variable cost is $13,000 per day. Calculate the average fixed cost, average variable cost, average total cost and total cost at the current output level.
(c) As firm owner you estimate that the average total cost is $46.71 and the marginal cost is $46.71 at the current level of output. Explain the relationship between this marginal cost and average total cost figures.
Question 5:
(a) Illustrate with diagrams and explain how a monopolistically competitive firm and a perfectly competitive firm differ in the allocation of resources;
(b) Illustrate with diagrams and explain how a perfectly competitive firm and monopolist differ in their allocative efficiencies;
(c) Illustrate with diagrams and explain how the individual firm and the industry differ in their short-run perfectively competitive resource allocations;
(d) Illustrate with a diagram and explain the long-run perfectly competitive equilibrium for the firm.
Question 6:
(a) Illustrate and explain using two diagrams the long-run supply of a contestant cost industry for both the individual firm and the industry;
(b) Illustrate and explain using two diagrams the long-run supply of an increasing cost industry for both the individual firm and the industry;
(c) Illustrate and explain using two diagrams the long-run supply of a decreasing cost industry for both the individual firm and the industry.
Question 7:
What will happen to the equilibrium price and quantity of margarine in each of the following cases? Illustrate with a diagram and explain whether demand or supply (or both) have shifted and in which direction. (In each case, assume ceteris paribus).
(a) A rise in the price of magarine;
(b) A rise in the demand for yoghurt;
(c) A rise in the price of bread;
(d) A rise in the demand for bread;
(e) An expected rise in the price of butter in the near future;
(f) A tax on butter production;
(g) The invention of new, but expensive, process for removing all cholesterol from butter, plus the passing of a law which states that all butter producers must use this process.
Question 8:
The diagram below illustrates a firm under monopolistic competition:
(a) Label the following curves: Curve I, Curve II, Curve III, Curve N.
(b) Does the diagram represent the short-run or long-run position? Explain your answer.
(c) Is P3 the long-run equilibrium price? Explain your answer.
(d) What are the profit maximising output and price?
(e) On the diagram, shade in the amount of profit made at the maximum-profit output.
(f) Draw new average and marginal revenue curves on the diagram to illustrate the long-run equilibrium that will occur after the entry of new firms into the industry.
(g) Explain the relationship between the AC, MC, AR and MR curves at this long-run equilibrium position?
Part B - Macroeconomics-
Answer any five of the following questions.
Question 9:
Suppose the following are National Accounts data for a given year for some particular country:
|
Measure / Variable
|
Amount (Billions of Dollars)
|
|
Consumption of fixed capital
|
320
|
|
Gross private fixed capital formation
|
785
|
|
Government consumption expenditures
|
585
|
|
Government investment expenditures
|
210
|
|
Imports of goods and services
|
565
|
|
Exports of goods and services
|
690
|
|
Household consumption expenditure
|
3115
|
|
Net property and other income paid overseas
|
34
|
|
Returns to labour
|
2651
|
|
Firm profits
|
1687
|
|
Other factor rentals
|
482
|
(a) Calculate GDP using the Income method:
(b) Calculate GDP using the Expenditure method at market prices: 6
(c) Calculate Gross National Expenditure (GNE):
(d) Calculate Net Domestic Product (NDP):
(e) Why might NDP be a better measure of economic performance thanODP:
(f) Calculate Gross National Product (GNP):
(g) Calculate Net National Product:
(h) Calculate Current Account Balance:
(i) Calculate Gross National Savings:
(j) If tax revenues are $17 Billion for the fiscal year, then what is the value of national savings?
(k) If mpcd remains at 0.63 and GDP changes to $4873 billion; then what will the new level of domestic consumption be?
(l) If exports then increase by $4 billion, private sector investment decreases by $3 billion; and government consumption and investment decrease and increase by $3 billion and $4 billion respectively; by how much will GDP change and what will its new value be?
Question 10:
(a) Which of the following are final goods and services and which are intermediate goods and services? Please explain why in your answer.
(i) A windscreen purchased by a motor vehicle spare parts supplier;
(ii) A new bulldozer to be used by a construction company;
(iii) A household cleaning service purchased by a family from a domestic cleaning service company;
(iv) Coking coal
(b) An economy produces final goods and services with a market value of $870 billion in a given year, but only $720 billion worth of goods and services is sold to domestic or foreign buyers. Is this nation's GDP $870 billion or $720 billion? Explain your answer.
(c) Explain why a new truck sold for use by a mining company is a final good, even though it is a fixed investment (capital) used to produce other goods.
Should the value of this truck then be added to GDP or should only the goods it transports be included in GDP? Explain your answer.
Question 11:
(a) Illustrate and explain with diagrams the difference between demand-pull and cost-push inflation;
(b) Provide (describe) two causes of each type of inflation.
Question 12:
(a) Do you think that macroeconomic policy should be designed to achieve a measured unemployment rate of zero? Why or why not should this be the case?
(b) How did the classical economists interpret long-run unemployment?
(c) How does structural and cyclical unemployment differ and how concerned should policymakers be about these types of unemployment?
(d) Describe the essential differences between the Keynesian and monetarist approaches to the workings monetary policy. Make sure that your explanation includes the relevant assumptions.
Question 13:
Using the aggregate demand - aggregate supply (AD-AS) diagram, show how the four economic events would affect economic activity and the price level. (Note: use a separate AD-AS diagram for each event)
(a) A decline in the marketing and selling skills of filincmarketing agents;
(b) An increase in imports;
(c) A significant destruction in an economy's capital stock because of war;
(d) An decrease in personal income tax;
Question 14:
(a) The consumer price index (i.e. CPI) is the most commonly used measure of changes in the general level of prices in Australia. Discuss some of the advantages and disadvantages of using this measure.
(b) Explain why some people 'lose' from inflation and why do some people 'win' from inflation?
(c) How accurate is the Australian measure of unemployment?
Question 15:
Which of the following would cause a growth in the money supply? Answer yes, no, or possibly and explain your answer (i.e. please provide reasons).
(a) The selling of government securities to banks;
(b) A fall in interest rates;
(c) An increase in government expenditure, financed by borrowing from the banking sector;
(d) The purchase of government securities by the Central Bank from the banking sector;
(e) it is agreed by the Treasurer and the Governor of the Central Bank to reduce the target rate of inflation
Question 16:
Assuming the following changes to an economy are the only changes, identify those that are changes in injections and those that are changes in withdrawals (i.e leakages). Explain your answer.
Also, identify whether the change that you have identified, is an increase or a decrease in the injection or withdrawal.
(a) A town council funds a new library;
(b) The Ferderal Government raises the tax free thre shhold;
(c) Fewer tourists visit Australia;
(d) Consumers demand more domestically produced goods but total consumption remains constant;
(e) People are purchasing bonds issued by the banks;
(f) Manufacturing firms are encouraged by lower interest rates to borrow to finance the building of new factories;
(g) Consumers abroad are deterred by high prices for the Australian dollar from buying imports from Australia;
(h) Both taxation and government expenditure are reduced;
(i) People decide to save more of their income;
(j) Our trading partners abroad begin to recover from a recession.