Assessment Item 2 – Short Answer Questions

Length: Approximately 1500-2000 words (Approx. 400-500 words for each question, excluding graphs, tables and reference list)

Question 1: Refer to Chapter 6- Imperfect Competition

(a) Explain with real life examples and illustrate short-run profit maximizing situation under (i) monopolistic and (ii) dominant firm price leadership under oligopoly. (1.5 marks each= 3 marks)
(b) Define, illustrate and explain with examples the method of price discrimination used by (i) airlines and (ii) cinema industry in Australia. (2 marks each=4 marks)

Question 2: Refer to Chapter 7- Market Failure and Government Policy

(a) Assume that a firm discharges waste into a river. As a result, the marginal social costs (MSC) are greater than the firm’s marginal (private) costs (MC). The table below shows how MC, MSC, AR and MR vary with output. Assume that the marginal private benefit (MB) is given by the price (AR). Also assume that there are no externalities on the consumption side, and that therefore MSB = MB. Study the Table-1 and answer the following 1

(i) How much will the firm produce if it seeks to maximise profits? (1 mark)
(ii) What is the socially efficient level of output? (1 mark)
(iii) How much is the marginal external cost at this level of output? (1 mark)
(iv) What size of tax would be necessary for the firm to reduce its output to the socially efficient level? (1 mark)
(v) Why is tax less than the marginal externality? Explain. (1 mark)

(b) Define and explain the difference between (i) public goods, and (ii) private goods, with examples. (1 each= 2 mark)

Question 3: Refer to Chapter 9- Introduction to Macroeconomics

(a) Explain in terms of the Australian circular flow of income if the following are net injections, net withdrawals or neither. If there is uncertainty, explain your assumptions.

(i) Australian investors earn higher dividends on overseas investments. (1 mark)
(ii) People draw on their savings to finance holidays in Australia. (1 mark)

(b) Using the data in Table-2 below calculate nominal GDP for the year 2015, 2016 and real GDP for year 2016. (2 marks)eco2

(c) Table-3 below gives the national accounts data for a hypothetical economy Dream-Zealand.eco3

Study the data from the above Table-3 and calculate (i) Gross Domestic Product (GDP=C+I+G+NX) using the expenditure approach and (ii) Gross National Expenditure (GNE=C+I+G). (3 marks)

Question 4: Refer to Chapter 10- The Determination of GDP

(a) Refer to the above Table-2 in Q3 (c) and (i) calculate the level of Injection (J) and Withdrawal (W) for Australia (ii) Based on W and J levels, what will happen to GDP growth? (2 marks )
(b) Define, illustrate and explain deflationary-gap and an inflationary-gap? (1.5 each= 3 marks)
(c) What do you understand by the term full employment? What is the effect of minimum wage on employment? Illustrate and explain. (2 marks)

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