BUS102 Introduction to Microeconomics

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  • Three Problem-Solving Questions that require written answers.

 

 

SKU: Econ898000

Group Assignment 0114

Question 1   

Part A

Australia produces ethanol from sugar cane, and the land used to grow sugar cane is used to grow food crops. Suppose that Australia’s production possibilities for ethanol and food crops are as in the table.

a.If Australia increases its production of ethanol from 40 barrels per day to 54 barrels per day, what is the opportunity cost of an additional barrel of ethanol?

b.Does Australia face an increasing opportunity cost of ethanol? What feature of Australia’s PPF illustrates increasing opportunity cost?

part-a

 

Part B

The table sets out the demand and supply schedules for banana.

part-b

 

c.Draw a graph of the market for What are the equilibrium price and quantity?Explain why.

d.If the price of banana was $1.50 a box. What would be the situation in the banana market (shortage or surplus)? Explain why and how the price and quantity would adjust.

e.Suppose a cyclone destroyed some banana farms in QLD and the quantity of banana supplied decreased by 500boxes a week at each price. Explain what would happen to the market supply and demand and how would the equilibrium price and quantity adjust?Illustrate the changes on your graph.

f.Suppose a cyclone decreased banana supply by 500boxes a week at each price. But at the same time the demand for banana increased by 500 boxes a week at each price. Explain what would happen to the market equilibrium price and quantity?Illustrate the changes on your graph.

partb2

Question 2

Part A

A tour agency’s demand schedule for hotel rooms is given in the table.

a.What happens to total expenditure of the tour agency if the price falls from $400 to $350 pernight per room? Is the demand for hotel room elastic, inelastic, or unit elastic?

b.What happens to total expenditure of the tour agency if the price falls from $300 to $250 pernight? Is the demand for hotel room elastic, inelastic, or unit elastic?

c.Calculate the demand elasticity of the hotel room, when the price falls from $400 to $350 pernight per roomand when the price falls from $300 to $250, respectively.

 

Part B

When Hana’s income was $3,300, she bought 5kgs of riceand 2kgsof beef a month. Now her income is $4,400 and she buys 4.5kgs of rice and 2.75kgs of beef a month.

d.Calculate Hana’s income elasticity of demand for Show your calculation.

e.Calculate Hana’s income elasticity of demand for Is rice normal good or inferior good? Show your calculation.

Suppose aflood cuts the quantity of sugar cane grown by 4 per cent.

f.If the price elasticity of demand for sugar cane is 0.5, by how much will the price of sugar cane rise? Show your calculation.

g.If sugar makers estimate that this change in the price of sugar cane will increase the price of sugar by 15 per cent and decrease the quantity demanded forsugar by 3 per cent, what is the price elasticity of demand for sugar? Show your calculation.

h.If coffee makers estimate that, with the change in the price of sugar, the quantity of coffee demanded will decrease by 6 per cent, what is the cross elasticity of demand for coffee with respect to the price of sugar?

partb1

Question 3

Part A

The table shows the demand and supply schedules for low-cost housing.

a.If the government puts a rent ceiling of $650 a month, what is the rent paid and how many rooms are rented? Explain why?

b.Now the government strictly enforces a rent ceiling of $550 a month.How many rooms are rented?Is the low-cost housing market efficient? Explain why.

c.If the government strictly enforces a rent ceiling of $550 a month, what happens to consumer surplus and producer surplus? Using the table information, draw a diagram to explain. Also, calculate total housing search costs and deadweight loss. Show your calculation.

Part B

The US Farm Bill 2012 indicates that the domestic price of wheat will be maintained at $350 per tonne, which is above the market equilibrium level of $300 per tonne, in order to support for domestic wheat growers.  At the market equilibrium, 100 tonnes are supplied.

a.Is the wheat price control in the US a price floor or a price ceiling?

b.On a graph, show and explain if the price control in the US creates a shortage or a surplus in the market for wheat. Assume that the US does not trade wheat internationally.

c.Show on a graph and explain how the price control in the US changes consumer surplus, producer surplus, and deadweight loss in the domestic wheat market.

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