Economic

Semester 1, 2021

Section A

Short Answer Questions

Total no. of marks for this section: 20

Answer all questions

QUESTION ONE (5 Marks)

Stan buys a 1989 Ford Capri with the intention of repairing, restoring and selling it. He anticipates that it will cost him $20 000 to purchase, repair and restore the car, and that he can sell the finished car for $26 000. When he has spent a total of $10 000 on the project, he discovers that he needs to replace the engine. Stan will incur $6000 in explicit costs to replace the engine. If he replaces the engine he can sell the car for $26 000. He can sell the car without the new engine for $18000. What should he do?

QUESTION TWO (5 Marks)

Suppose you live in a populous neighbourhood. What are the external costs of repairing the roof of your house on the weekend? Use a diagram to illustrate your answer.

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QUESTION THREE (5 Marks)

Consider the perfectly competitive market for bananas in Australia using supply and demand model. Explain the effect of each of the following with the help of a diagram on equilibrium price and quantity:

a) Conflict with China.

b) Flooding in Queensland.

c) Invention of a new banana plant variety that is relatively easy to grow.

d) Shortage of workers on bananas farms.

e) Breakout of a new fungal disease that damages banana production across the country.

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QUESTION FOUR (5 Marks)

Calculate the relevant price elasticity and income elasticity. Analyse the data carefully for ceteris paribus conditions.

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Section B

Long Answer Questions

Total no. of marks for this section: 30

Answer all questions

QUESTION ONE (15 Marks)

Suppose the Australian economy is experiencing a recession due to COVID-19. Discuss the impact of successful mass vaccination drive against COVID-19 on the unemployment rate and output in Australia. Demonstrate the relationship using Aggregate Demand and Aggregate Supply model.

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QUESTION TWO (15 Marks)

Critically discuss and compare the models of perfect competition and monopolistic competition. Which model is better suited to explain the dynamics of the market for canned tomato soup in Australia?

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