Assignment
Tutorial 1- Industry Application questions
The point of this exercise overall is for students to think about what is involved in an industry; how industries can be very different and to relate their economic studies to think about, given the nature of the products/services being produced, why the industries have the characteristics they do.
Questions:
1. Define the industry that you are applying these concepts to. Your industry ought to be pretty precisely defined and this is not necessarily an easy thing to do. Note that it can be just as important to say what is NOT included, as what is.
It is OK to use the IBISWORLD definition, or any sensible attempt at defining the industry. IBISWORLD definitions are below
2. What are the key products in your industry? List or briefly describe a few of the most important ones.
3. Economics categorises all the inputs of the production process into four different categories-:
Land, Labour, Capital, Entrepreneurship
(i) Provide three examples of key "land" resources used in your industry.
(ii) Provide three examples of key "capital" resources used in your industry.
(iii) Discuss the labour resources required - how important is skilled labour? What are the types of skills required? Does the industry use much unskilled labour? Do they mainly use full time, part- time or casual labour?
(iv) Discuss the nature of the entrepreneurship resource-:
For example, are there many entrepreneurs who have created businesses that are currently operating in your industry? OR
Did the real entrepreneurship occur a long time ago, and the business is really run by managers for investors now?
Are the entrepreneurs close to the business - for example, they run and/or work in the business or monitor it closely?
Tutorial 2- Industry Application Questions
4. Describe the producers in your industry. For example, how many firms are in your industry? Are there some major players, and/or a range of smaller players? Who are the few biggest firms? What does a ‘normal' firm look like in this industry?
NOTE to students- For Water supply industry - please focus on the industry in South Australia only. The population of SthAust in 2015 was 1.699 million
Example answer to this question- this used to be true; is no longer-:
Motor Vehicle Manufacturing industry in Aust-:
There are 452 firms in this industry, but there are 3 major players in Australia. They are Toyota with 37.2% of the market, GM Holden with 16.1% and Ford with 8.9%. Each of these firms have large factories based in different locations in Australia - Toyota in Altona, Victoria; Ford in Geelong and Broadmeadows, Victoria and GM Holden in Elizabeth, Sth Aust. The rest of the industry is made up of the 449 smaller firms distributed through all states of Australia, except for Tasmania, NT and ACT. Each major manufacturer sells their cars via their own Australia-wide network of dealers, and there is a small export market.
5. Who are the major buyers (demanders) of the products of your industry? Do buyers buy locally for local use, or is the product traded nationally, and / or internationally?
6. How do buyers and sellers come together to trade in your industry ie how and where are the goods and services exchanged?2 marks
7. Give examples of each of the 5 non-price determinants of demand that change demand for the key products in your industry. Which do you think are the 2 most important non-price determinants for your industry?
8. Explain the difference between a movement along the demand curve, and a shift of the demand curve, in your industry.4 marks
9. Give examples of each of the 5 non-price determinants supply that change the supply for the key products in your industry. Which do you think are the 2 most important non-price determinants for your industry?
10. Explain what would happen in the market for one of the key products in your industry if there was an increase in the cost of inputs to production. Ensure you draw a diagram and provide a full explanation of what would occur.
Tutorial 3- Industry Application Questions
Question 1
Discuss each of the factors that determine the price elasticity of a product with respect to the product or product category listed for your industry. Do you think this product or product category is likely to have a price elasticity of demand that is elastic or inelastic at their current market price levels, looking over a period of 6 months?
The product or product category you should use for this question is-:
Grain growing industry - wheat sold domestically to mills who make flour (flour is later sold to food manufacturers and bakers)
Supermarkets and Grocery Retailing - frozen vegetables (which are cut up & ready for cooking) purchased from these stores
Cafes and Coffee shops - one standard sized cappuccino, for in-café consumption
Water supply - potable water for household use
Question 2
The CEO of the Industry Association that works to advise firms in your industry wants to increase total revenue in your industry, and is considering advising all the firms in the industry to increase their recommended retail price for the appropriate product or product category as above in question 1. Write a short paragraph that explains to CEO of the Industry Association whether this is a suitable course of action for them to recommend, and why.
Question 3
Irrespective of your answers to questions 1 and 2 above, assume your product or product category has a price elasticity of demand of 1.2 How would demand for the product change if the price of the product decreased by 10%? Would total revenue for the product or product category increase or decrease?
Question 4
Give the formula for income elasticity of demand. What do you think is the likely income elasticity of demand for products in your industry (ie is it positive or negative? A large number or a small number?). Justify your answer with reasons.
Question 5
Give the formula for cross price elasticity of demand. What do you think is the likely cross price elasticity of demand for products in your industry compared to the product category shown against it below (ie is it positive or negative? Close to zero or a long way from zero?)? Justify your answer with reasons.
• Water Supply industry products and new pool construction
• Supermarkets and Grocery Stores industry products and restaurant meals
• Cafes and Coffee shops industry products and restaurant meals
• Grain Growing industry products and butter sold for human consumption
Tutorial 4- Industry Application Questions
1. Is it likely that, in your industry, there is some consumer surplus? Is there likely to be any producer surplus? Why, or why not?
2. Has the government ever set the price in your industry? Why would they do that, or why not?
3. Assume the Government did choose to set a price control on the products in your industry, would it be more likely to be a price floor or a price ceiling? What are your reasons for your answer?
4. Given your answer in question 3 above, please explain how the price and quantities of the products in the market for your industry would change by reference to a fully labelled diagram.
5. Given your answer in question 4 above, please explain how the economic surplus in the market for your industry would change by reference to a fully labelled diagram.
6. Australia has a GST (goods and services tax) of 10% that works very similarly to a VAT (value-added tax) in other countries (ie they simply use a different name for it, and the amount may be different). However, unlike most other countries, Australia allows some products and services to be GST free. Does the Government tax the products of your industry with GST?
Tutorial 5- Industry Application Questions
11. Name three fixed costs and three variable costs in your industry in the short run.
12. How can firms in your industry increase production in the short run?
13. Draw a diagram (not copy & paste; you need to draw and label it) showing AVC, ATC and MC for the short run for firms in your industry. No need to include AFC. Explain the shapes of these curves - what economic principle is behind their shapes? Explain where the MC cuts the AVC and ATC curves. (use your own words to demonstrate your understanding of these principles)
14. If firms in your industry thought that demand was going to increase in the future by a significant amount - say, by 50% or more - they would need to change the scale of their operation. Briefly explain which of the resource inputs to their production process would probably take the longest to change, to be able to increase production by such a large amount? (please name a specific input, not the category of input type). Therefore, explain how long you think the short run would be likely to be for your industry?
5. Are economies of scale important to the firms in your industry? Explain why, or why not. Give two examples of economies of scale in your industry.
6. Are diseconomies of scale possible in your industry? Explain. Give an example of a diseconomy of scale for a firm in your industry.
Tutorial 6- Industry Application Questions
(all students answer all these questions, whether they have been assigned a perfectly competitive industry or not)
1. Explain how your industry compares against each of the important conditions that define a perfectly competitive market structure. Is your industry a perfectly competitive industry?
2. How does each firm in a perfectly competitive industry decide the price they will charge, and the quantity they will sell? Explain.
3. Is it possible for firms in a perfectly competitive industry to make an economic profit or an economic loss in the short run? Explain, using a diagram.
4. Is it possible for a firm in a perfectly competitive industry to make an economic profit or an economic loss in the long run? Explain, using a diagram.
5. Briefly discuss the economic efficiency of a perfectly competitive industry.
Tutorial 7- Industry Application Questions
Note: for water supply industry, think of SthAust situation only in all industry applied questions
(all students answer all questions, whether they have been assigned the Water supply industry or not)
1. Explain how your industry compares against each of the important conditions that define a monopoly market structure. Is your industry a monopoly industry?
2. How does each firm in a monopoly industry decide the price they will charge, and the quantity they will sell? Explain. Consider the cases of a private monopoly and a regulated monopoly.
3. Is it possible for a firm in a monopoly industry to make an economic profit or an economic loss in the short run? Explain, using a diagram. Consider the cases of a private monopoly and a regulated monopoly.
4. Is it possible for a firm in a monopoly industry to make an economic profit or an economic loss in the long run? Explain, using a diagram. Consider the cases of a private monopoly and a regulated monopoly.
5. How does the economic efficiency of the water supply industry compare to the economic efficiency of a perfectly competitive industry?
(please discuss in terms of productive efficiency, allocative efficiency and dynamic efficiency)
Tutorial 8- Industry Application Questions
1. Explain how your industry compares against each of the important conditions that define a monopolistic competition market structure. Which of the four industries included in the assignment is a monopolistic competition industry?
2. How does each firm in a monopolistic competition industry decide the price they will charge, and the quantity they will sell? Explain.
3. Is it possible for a firm in a monopolistic competition industry to make an economic profit or an economic loss in the short run? Explain, using a diagram.
5. Is it possible for a firm in a monopolistic competition industry to make an economic profit or an economic loss in the long run? Explain, using a diagram.
6. How does the economic efficiency of the café and coffee shop industry compare to the economic efficiency of a perfectly competitive industry?
(please discuss in terms of productive efficiency, allocative efficiency and dynamic efficiency)
6. Explain how your industry compares against each of the important conditions that define an oligopoly market structure. Which of the four industries included in the assignment is an oligopoly industry?
The Industry application questions from Tutorial 1 to Tutorial 8 inclusive are the questions that constitute the Assignment. There are no further questions on oligopoly than question 6 above.
IBISWorld Industry Report G4111 Supermarkets and Grocery Stores in Australia by Brooke Tonkin, February 2016.