ECO501/ECO511 Assignment 2

| August 14, 2017

Length:no more than 2500 words(including graphs,
tables etc).
Font size: 12; Margins: 2.5 cm on all sides

Please submit via Reception and Turnitin.
[This Assessment item
covers in full (or partially) the Learning Objectives 1, 3, 4, 5 and 6].

PART A
Activity
1. [30
marks]
You
are given the following information in relation to the market demand and supply
of Ford cars:
Ford
Cars: Market Demand and Supply

Price ($)

Quantity demanded/sold

Quantity supplied

Price elasticity of demand

Total Revenue

20,000

40,000

10,000

25,000

35,000

15,000

30,000

30,000

20,000

35,000

25,000

25,000

40,000

20,000

30,000

45,000

15,000

35,000

50,000

10,000

40,000

(i)
Draw the market Demand and Supply curves (on the same graph)
for Ford. [5 marks]
(ii)
What is the market equilibrium price and quantity? [5
marks]
(iii)
Explain what you will
observe in the market if the Ford car price is set at a higher than equilibrium
price. [5 mark]
(iv). Suppose
you are managing director of Ford Australia, and you are wondering whether or
not to cut the price of Ford cars to increase your total revenue from
sales. Explain how your knowledge of
elasticity of demand can help you make this decision. Complete the last two
columns of the above table and also draw a graph to explain your answer. [8 marks]
(v).
Suppose car industry is very competitive and Ford has been losing its competitiveness
in
the car market. Suppose that the government is providing
substantial financial support to
Ford manufacturers with the
view that it will improve Ford’s competitiveness. Evaluate the
merits and demerits of this
government policy measure. [7 marks]
Marking Criteria:
To obtain full marks, you need to demonstrate
clear understanding of the subject content covered/related to this activity.
You need to explain where relevant how the knowledge can be used to make
price/revenue decision. You also need to demonstrate your ability to use your
content knowledge to make decisions in the real world scenarios. Use of correct, complete and relevant graphs is
part of the skills/abilities expected.
Practice work for the above activity (1):
·
Study Guide Topic 2; Self assessment questions 2, 3 and 4.
·
Textbook: Chapter 3, REVIEW
QUIZES on p. 63.
·
Textbook: Study Plan
Problems & Applications No. 11, p.
76 and Additional Problem &
Applications 21-27, pp. 77-78;
·
Textbook: Pages 83-84;
REVIEW QUIZES 2-3, p.86;

Activity 2: [30
marks]
(i). Explain the difference between accounting
profit and economic profit. Include discussion of the distinction between
explicit and implicit costs and how they relate to economic cost and
opportunity cost. [5
marks]
(ii). Suppose
your aunt is thinking about opening a hardware store. She estimates that it
would
cost $ 500,000 per year to rent
the store and buy the stock. In addition, she would have to
quit her $ 510,000 per year job
as an accountant.
What is your aunt’s opportunity cost of running a
hardware store for a year? If your aunt
thought she could sell $ 510,000 worth of merchandise in a year, should she
open the store? Explain.
[5 marks]
(iii). Compare and contrast the two market structures:
Perfect Competition and Monopoly, in
line with main characteristics of them.
Comment of the Price and profit maximising output
level in the two structures. [5
marks]
(iv). Which market structure is considered to
be more efficient? Justify your answer
[3
marks]
(v). List down two closest real world examples for
each of these market structures.

[2 marks]
(vi). Do you believe that
the government should intervene to control the monopoly power in the market. You need to argue for/justify your answer. [5 marks]
(vii). In a free market
system, why does the government have to provide certain goods and services
using tax payers money? Is there any
justification? Explain providing examples.

[5 marks]

Marking Criteria:
To obtain full marks, you need to demonstrate
clear understanding of the subject content covered/related to this activity.
You also need to explain where relevant how the knowledge can be used to make
decisions in the real world. Make sure that you use correct, complete and
relevant graphs to explain your answers.
Any justifications need to be made based on the subject content
(theory/concepts) related to this subject.
Use of correct, complete and relevant graphs is part of the
skills/abilities expected.

Practice work for the above
activity (2):
·
Study Guide Topic 1: Self assessment questions 1 and 2; Study Guide
Topic 4.1, Self assessment questions 1;
·
Textbook: REVIEW QUIZEs 1-5,
p.284; REVIEW QUIZES 1-3 p.307 and REVIEW QUIZES 1-3 p.311; Study Plan Problems
& Applications 7-8, p. 327;
·
Textbook: REVIEW QUIZEZs 1, 3, and 4, p.219; REVIEW QUIZEZs 1-4.
P.224; Study Plan Problems &
Applications 6-10, p.235.
·
Textbook: REVIEW QUIZEZs 1,
3, and 4, p.176; and REVIEW QUIZEZs 1
and 4. P.180; Additional Problems &
Applications 17,p.191.

PART B [40
marks]

Activity 3:
Section I: [20 marks]
(i). (a). What is gross domestic product (GDP) and
what is the use of it? [5
marks]
(b). Comment on how well this measure
serves its intended purposes. [4
marks]
Practice work for the above activity:
* Textbook: REVIEW QUIZEs 1
and 2, p.400; REVIEW QUIZE 1, p.409; read pages. 407-408. Additional Problems and
Applications, 27-28, p.419;
(ii).
(a). What is unemployment [2 marks]
(b). Can a country achieve a 0%
unemployment rate, Explain [5
marks]
Practice work for the above activity:
* Textbook: REVIEW QUIZEs 1 –
4, p.429; Study Plan Problems & Applications 1 – 4.
(iii).
(a). What is inflation, and how it is calculated [4 marks]

Practice work for the
above activity:
* Textbook: REVIEW QUIZEs 3; Study Plan and Applications 12-16,
p.440;Additional Problems and
Applications 33 and 34, p. 442.

Section II: Essay Question: [20 marks]

Explain why inflation is a main concern
for an economy, and examine how well inflation in Australia has been managed by
the monetary authority over the last 10-15 years.
To do the above activity, you need to read relevant chapters in
your text book to get theoretical/conceptual understanding of the subject
matter and read outside the textbook/Study Guide to examine the Australian
case. These readings may include published research papers/articles, reports,
reviews in the media and any other materials published with authority.
In borrowing/extracting the ideas from other sources, you must
properly acknowledge it. This means that you need to prepare a list of references
at the end of Essay question.

Marking Criteria:
To obtain full marks, you need to demonstrate
clear understanding of the subject content covered/related to this activity.
You also need to explain where relevant how you can use content knowledge to
make decisions in the real world. Any justifications need to be made based on
the subject content (theory/concepts) related to this subject. Use of correct, complete and relevant graphs
is part of the skills/abilities expected.
To
obtain full marks in the assignment, you also need to adhere to the following:
* use correct terminology
* stick to the word limit
* Follow the Presentation guidelines as referred to in the Subject Outline

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