Question details

Choose and attempt any five (5) of the following eight (8) questions
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Choose and attempt any five (5) of the following eight (8) questions


 It ensures that the learner is competent in understanding the every day relevance and importance of microeconomic behaviour;

 It comprises of the following applied and analytical questions on microeconomic principles;

 Your answers should explain your reasoning clearly and fully and use diagrams where appropriate;

 It must be an individual piece of work (i.e. your own creation);

 It must be typed;

 You should complete the questions progressively during the semester;

 All diagrams and definitions and descriptions must be referenced.

Question 1:

(a) During a five year period the ticket prices of a city professional soccer club have increased by 30% while at the same time average ticket sales have risen by 50%.Does this change imply an upward sloping demand curve or is there a simpler explanation? (5 marks)

(b) Explain how a price floor mechanism works in a market to change the allocation of resources. What difference does it make if the price floor is set below or above the market equilibrium price? (5 marks)


Question 2:

(a) Indicate for each pair of goods which good has the more elastic price demand and why: (1) cars; petrol (2) electricity; amusement park admission (3) jeans; a pair of trousers

(5 marks).

(b) Suppose the price elasticity of demand for train travel is elastic. If the rail authority wishes to raise revenue from fares, should it raise them or lower them? Explain using a diagram (5 marks).

Question 3:

(2 marks each, 1 for explanation and 1 for the dialgram)

Using supply and demand analysis, explain and illustrate graphically the effect of the following situations.

(a) Population growth surges rapidly;

(b) The prices of resources used in the production of good X increases;

(c) The government is paying a $1 per unit subsidy for each unit of good Y produced.;

(d) The income of consumers of normal good X increases;

(e) The income of consumers of inferior good Y decreases;

Question 4:

(a) Consider the following statement: “Total output starts falling when diminishing returns

occur”. Do you agree or disagree? Explain using a diagram (5 marks).

(b) Explain what is meant by economies of scale. List and briefly explain four reasons why economies of scale are likely to exist (5 marks).

Question 5:

(a) Suppose the income elasticity of demand for pre-recorded music compact disks is +4 and the income elasticity of demand for a cabinet maker‟s work is +0.4. 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. (2 marks)

(b) How might you determine whether the pre-recorded music compact discs and MP3 music players are in competition with each other? (2 marks)

(c) Interpret the following Income Elasticities of Demand (YED) values for the following and state if the good is normal or inferior; (3 marks total, 1.5 marks per

YED= +0.5 and YED= -2.5

(d) Interpret the following Cross-Price Elasticities of Demand (XED) and explain the relationship between these goods. (3 marks total, 1.5 marks per part)

XED= + 0.64 and XED= -2.6


Question 6:

(a) How does the kinked demand curve model offer some insights into why prices in oligopolistic industries appear to be “sticky”. (3 marks)

(b) What are the major shortcomings of the kinked demand curve model? (4 marks)

(c) Assuming that firms act independently, what common outcome is likely to occur among oligopolists during a period of rising costs and prices? (3 marks)

Question 7:

(a) What are the characteristics of a monopolistically competitive market and how do these differ from perfect competition? (5 marks)

(b) Most local milk bars are excellent examples of small firms operating in a monopolistically competitive market. Consider a typical milkbar:

(1) In what ways are the products sold by milk bars similar?

(2) If products sold by milk bars are similar, how do they differentiate themselves from each other (5 marks)

Question 8:

(a) Outline a micro-economic reform issues that is relevant to the Australian economy (i.e. why has there been reform in this industry or market? (5 marks)

(b) How successful do you think these reform measures were and say why referring to some data or research that has been performed (5 marks).

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