ECO511 Assignment 2

ECO501/ECO511

Assignment 2

[40%],

Length: no more than 2500 words (including graphs, tables etc).
Font size: 12;
Margins: 2.5 cm on all sides
Submission date: 18 January 2014.
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 ($)
20,000
25,000
30,000
35,000
40,000
45,000
50,000

Quantity
demanded/sol
d
40,000
35,000
30,000
25,000
20,000
15,000
10,000

Quantity
supplied

Price elasticity Total Revenue
of demand

10,000
15,000
20,000
25,000
30,000
35,000
40,000

(i)

Draw the market Demand and Supply curves (on the same graph) for Ford.
marks]

(ii)

What is the market equilibrium price and quantity?
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).

[5

[5

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]
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(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.
marks]

[7

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:
(i).

[30 marks]

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
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level in the two structures.
marks]

[5

(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]

Page 3 of 5

Activity 3:
Section I:

[20 marks]

(i). (a). What is gross domestic product (GDP) and what is the use of it?
marks]

[5

(b). Comment on how well this measure serves its intended purposes.
marks]

[4

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
(b). Can a country achieve a 0% unemployment rate, Explain
marks]

[2 marks]
[5

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
marks]

[4

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 1015 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.

Page 4 of 5

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

Page 5 of 5