Analyse how prices are determined in a market

Reference no: EM132601915 , Length: word count:2000

MA503 Economics - Melbourne Institute of Technology

Learning Outcome 1: Identify and explain the key ideas that define economic way of thinking and the maximisation of scarce resources.

Learning Outcome 2: Analyse how prices are determined in a market.

Learning Outcome 3: Compare and contrast the key characteristics of various market structures and market strategies adopted by firms in different market environments.

Question 1

(a) What is the assumption of a production possibilities frontier model?

(b) If the shape of the frontier is a straight line, what does the shape tell you?

(d) If the shape of the frontier is a curve bending inwards, what does the shape tell you?

(e) Why do most of the PPFs bend outwards? Explain using an example.

Question 2:

(a) Explain and illustrate using a suitable diagram, the impact of the external cost on resource allocation using the example of carbon emission in coal-fired electricity production, and explain what policy measures can be used to deal with the external effect in order to obtain a socially efficient allocation of resources.

(b) Explain and illustrate using a suitable diagram, the impact of the external benefit on resource allocation using an example of higher education, and explain what policy measures can be used to deal with the external effect in order to obtain a socially efficient allocation of resources.

(c) List two public goods or services and two private goods and services and explain why these goods or services become public goods or services.

Question 3:
The following diagram shows the cost curves of a firm under perfect competition.

How much will the firm produce in order to maximise profits at a price of $8 per unit?

(b) What will be its average cost of production at this output?

(d) How much will the firm produce in order to maximise profits at a price of $5 per unit?

(e) How much (supernormal) profit will it make?

(f) How much will the firm produce in order to maximise profits at a price of $4 per unit?

(g) What will be its profit position now?

(h) Below what price would the firm shut down in the short run?

(i) Below what price would the firm shut down in the long run?

Case study - Booked out within an hour: Sydney restaurants prepare to reopen

Complete the following tasks:

1. Use demand and supply analysis to describe the impact of COVID-19 on restaurants located in Sydney between March and April as presented in the case study above. In particular, you need to compare the equilibria prior to and during the lockdown period respectively, and explain the causes leading to the difference between the equilibria.

2. Use demand and supply analysis to describe the impact of the first stage of the restrictions easing on the restaurants market. You need to compare the equilibria prior to and during the lockdown period, and during the first stage of the restrictions easing. Explain the causes of the difference between the equilibria.

3. Use microeconomic theory to explain how restaurant owners made their decisions on their output prior to the pandemic of COVID 19 restrictions. Please illustrate the decision in diagrams.

4. Use microeconomic theory to explain why not all restaurants, in particular, some restaurants with a large numbers of seats are not reopening during the first stage of restrictions easing. Use proper diagrams to support your explanation.

Attachment:- Economics.rar

Reference no: EM132601915

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