Solution Code: 1GGC
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This assignment is intended to enable you to demonstrate effective use of some of the fundamental methods and tools of microeconomics and macroeconomics concepts and apply elementary principles and models in the respective context of the questions. You are expected to critically analyse and communicate effectively using appropriate economics terminology and models, in the form of diagrams which should be incorporated into your assignment.
PART A - Microeconomics
Question 1
Lift predicted for live sheep trade
Source Bailey, K. (2015). Lift predicted for live sheep trade. Retrieved 11 10, 2015, from
https://www.farmonline.com.au/news/agriculture/sheep/meat/lift-predicted-for- live-sheep-trade/2722671.aspx
Question 2
Consider the following data related to a hypothetical market for residential apartments in a major city.
Rental Price (per week)
Quantity Demanded
Quantity Supplied
$150 38 2 $200 35 5 $250 32 8 $300 29 11 $350 26 14
$400 23 17 $450 20 20 $500 17 23 $550 14 26
$600 11 29 $650 8 32
Question 3
Quantity of Microwave ovens
Question 4
PART B - Macroeconomics
Question 5
Source:
https://www.abs.gov.au/ausstats/abs@.nsf/Latestproducts/6202.0Main%20Features1Mar%202016?op
endocument&tabname=Summary&prodno=6202.0&issue=Mar%202016&num=&view=
Question 6
iii. A neighbouring country reduces the demand for exports due to a recession.
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Part A: microeconomics
Question 1:
Change in quantity demanded is the increase or decrease in the quantity demanded of a commodity as a response to a change in it price. It is the effect of law of demand. When price of a commodity increases, the quantity demanded of a commodity decreases and vice versa, other things remaining constant; whereas change in demand refers to the increase or decrease in demand of a commodity due to a change in the other things – prices of other related commodities, tastes and preferences of the consumer and income of the consumer (William Baumol, 2012).
Change in quantity demanded is a movement along the demand curve, whereas change in demand is the shift in the demand curve. In the figure below a movement along the demand curve DD1 from point A to point B happens due to a change in price and this is referred to as change in quantity demanded. And the change in demand is represented through shift in demand curve when there is a increase in demand, the demand curve shifts from DD1 to DD2 and when there is a decrease in demand, the demand curve shifts from DD1 to DD3
(ii) Hence there is a rightward shift in demand and leftward shift in SS as shown in the figure below and these results in higher prices.
When there is higher demand for lamb due to want of protein, it results in the change of preferences towards lamb which shifts the demand curve rightward to DD2 and similarly when the Australian producers tighten the production, there is a leftward shift in the supply to SS2 and hence the higher price for the lamb is at P2 and the equilibrium quantity increases to Q2 as shown in the figure above.
Question 2:
b)The equilibrium price is at $ 450 and equilibrium quantity is at 20 where demand is equal to supply.
Question 3:
TFC is at 180.
TVC = TC- TFC
AFC = TFC / Q
AVC = TVC /Q
ATC= TC /Q
MC = (TCn- TCn-1)
Qty | TC | TFC | TVC | AFC | AVC | ATC | MC |
0 | 180 | 180 | 0 | ||||
1 | 310 | 180 | 130 | 180 | 130 | 310 | 130 |
2 | 380 | 180 | 200 | 90 | 100 | 190 | 70 |
3 | 450 | 180 | 270 | 60 | 90 | 150 | 70 |
4 | 540 | 180 | 360 | 45 | 90 | 135 | 90 |
5 | 650 | 180 | 470 | 36 | 94 | 130 | 110 |
6 | 780 | 180 | 600 | 30 | 100 | 130 | 130 |
7 | 930 | 180 | 750 | 25.71 | 107.14 | 132.86 | 150 |
8 | 1100 | 180 | 920 | 22.5 | 115 | 137.5 | 170 |
The cost curves – AFC, AVC, ATC and MC are drawn in the following graph
Question 4)
supernormal profits both in the long-run and in the short run.
The firm produces at a point where MC = MR and at this point the AC < AR which gives a super normal profit for the firms in the short run. When the firms earn super normal profits in the short run,many new firms enter the market attracted by the super normal profits.
The supernormal profits earned by the monopoly firm is shown in the following figure
The monopolist firm produces at a point where MC= MR and at this point the price is well above the average costs and this results in the super normal profits in the short run and also in the long run as there are barrier entries in the market and there is no competition for the monopolist both in the short run and long run. (Pindyck, S, & Rubinfeld, 2005)
Whereas in the case of monopolist, the equilibrium quantity produced does not ensure productive efficiency P?ATC and there is also no allocative efficiency P ? MC. And hence monopoly is less efficient than the perfectly competitive market structure
Part B: Macroeconomics
And labour force participation rate = labour force / adult population (Miller, 2012)
And labour force = employed + unemployed in the economy
And for the data given we have the unemployment rate calculated as
Unemployment rate (Mar 2016) = 729.6 / (11910.0+729.6) * 100 = 5.77%
Labour force in Feb is ( 11902.3 + 732.4 ) = 12634.7
Labour force in Mar is (11910.0+729.6) = 12639.6
And labour force participation rate = labour force / adult population
And labour force = employed + unemployed in the economy
Labour force participation rate (Feb ) = 12634.7 /18310.8 * 100 = 69%
Labour force participation rate (March) = 12639.6 / 18323.0 * 100 = 68.98%
AD = C + I + G + NX
Aggregate demand is the summation of consumption expenditure, investment expenditure, government purchases and a net exports in an economy. Consumption as a function of disposable income or the income minus the taxes. Investment is a function of interest rate and as interest rate increases investment spending in the economy decreases. Government spending is a autonomous function that is not affected by the price or interest rates. That exports is a function of real exchange rate where increase in the real exchange rate results in the decrease of net exports.
Consumption spending as the total amount of goods and services, that are purchased by the consumers in the economy and includes the purchases of the consumers. Consumption is affected by the price level and also the disposable income of households. Investment spending in the economy is a function of interest rates and when the interest rates increases, the investment spending falls as a cost of borrowing increases. Investment spending is taken by the private firms in the economy where they invest in missionary, buildings, factories, etc. another component of the aggregate demand as the government spending that is autonomous and does not get affected by the price level or the interest rates in the economy. Net exports is the difference between the exports and imports of the economy and this depend on the real exchange rate . when the real exchange rate increases, the value of the domestic currency increases and the price of domestic goods became relatively expensive than the foreign goods and hence the exports will decrease and imports will increase resulting in a decline in net exports. Similarly when the real exchange rate decreases, exports will increase and imports will decrease as a value of the domestic currency declines and this results in the increase in net exports (McEachern, 2012).
Therefore, they increase their spending. When there is a increase in the consumers confidence, they tend to demand more goods and services from the economy and as a result the aggregate demand curve shifts to the right implying more goods and services demanded at the existing price level.
When the price level increases from a to B, the aggregate demand is from wind the a to point B in the figure and when the price level increases to a much more higher level, it results in less output and employment in the economy
iii. A neighbouring country reduces the demand for exports due to a recession.
When the neighbouring country reduces its demand for exports, this country’s net exports decline as a result of which there is a leftward shift in the aggregate demand as shown in the figure below.
When the government decreases its spending on infrastructure facilities, the autonomous, component of the government purchases in the aggregate demand declines and as a result the aggregate demand shifts to the left as shown in the following figure
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