Explain the nature of the lrac

Reference no: EM131388528

ECO501/511 QUESTION BANK - Examination questions will be drawn from the following.

Topic 1 Questions

1. Using a production possibilities frontier, explain how each of economic growth, technological advances or the introduction of trade can enable an economy to achieve command over a combination of goods and services that it might otherwise not have access to.

2. Using production possibilities frontiers, explain the difference between absolute advantage and comparative advantage and why trade is beneficial to all participants.

3. Explain why operating inside a production possibilities frontier is a waste of resources and demonstrate the advantages and disadvantages of an economy emphasising the production of capital goods over the production of consumption goods. What difference might the prospect of international trade make to the decision of what goods to produce?

Topic 2 Questions

1. Explain the difference between a change in demand and a change in the quantity demanded.

2. Using two demand curves, explain the difference between a price elasticity of demand greater than one and a price elasticity of demand less than 1.

3. Does a firm increase or reduce its revenue by raising the price of its product?

Topic 3 Questions

1. Explain why the incidence of a tax is not determined by whether or not the tax is levied on producers or consumers.

2. Explain why a price floor may be considered economically inefficient.

3. Explain why a price ceiling may be considered economically inefficient.

Topic 4 Questions

1. Explain why firms will set marginal cost equal to marginal revenue in determining the level of output at which they will produce.

2. Explain the concept of economic profit and compare it to the concept of normal profit.

3. Explain the nature of the LRAC.

Topic 5 Questions

1. Explain why a monopolist may be able to make economic profits in the long-run.

2. Explain why governments may want to set the price charged by natural monopolies at the level where the demand curve cuts the average total cost curve.

3. Why can a firm operating in monopolistic competition make an economic profit in the short-run?

4. Under what circumstances can a firm operating in monopolistic competition make an economic profit in the long-run?

5. Why might marketing expenditure be important to a firm that operates in an industry that is characterised by monopolistic competition but unimportant to a firm that operates in a perfectly competitive industry?

Topic 6 Questions

1. What is the major reason that the labour demand curve is downward sloping with respect to the nominal wage or the real wage?

2. Explain, using labour demand and supply diagrams, why changes in the demand for labour over the last 20 years has led to an increase in earnings inequality.

3. Use a demand and supply diagram to explain how participation rates, employment and earnings could all have increased in Australia over the last two decades

Topic 7 Questions

1. Using an appropriate example, explain how government intervention in the market may be used to counter a negative externality in production in that market.

2. Using an appropriate example, explain how government intervention in the market may be used to counter a negative externality in consumption in that market.

3. Using an appropriate example, explain how government intervention in a market may be used to enhance the efficiency of the market when positive externalities exist in production.

4. Using an appropriate example, explain how government intervention in a market may be used to enhance the efficiency of the market when positive externalities exist in consumption.

Topic 8 Question

1. Explain the concept of the per-worker production function and, using it, explain why technological change is important in raising living standards.

Topic 9 Questions

1. Explain why the aggregate demand curve is downward sloping with respect to the general price level.

2. Explain the differences between the long run aggregate supply curve and the short run aggregate supply curve.

3. Explain why a stable economic equilibrium requires the economy to be operating at an output level at which aggregate demand curve, the long run aggregate supply curve and the short run aggregate supply curve all intersect.

4. Explain the factors that will shift the aggregate demand curve.

5. Explain the factors that will shift the long run aggregate supply curve. Will the same factors also shift the short run aggregate supply curve?

6. Explain the automatic adjustment mechanism of the economy to an economic expansion above potential GDP.

7. Explain the automatic adjustment mechanism of the economy to an economic contraction below potential GDP.

8. Explain the reaction of the economy to a supply side shock.

Topic 10 Questions

1. Explain why a reduction in export expenditure might result in the economy temporarily operating at less than potential GDP. Explain why this is temporary. If the government considers that operating at less than potential GDP - even for a short period - is unacceptable, explain how government policy might be used to move the economy to potential GDP.

2. Explain why an increase in export expenditure might temporarily result in the economy operating above potential GDP. Explain why this is temporary. If the government considers that the level of inflation associated with the adjustment of the economy back to potential GDP is too high, how might it act to moderate the outcome?

3. How can government's act to reduce unemployment through monetary or fiscal policy? Why might such action be considered a bad idea?

Topic 11 Questions

1. Using an appropriate diagram explain why the consumers resident in a country benefit from international trade with other countries.

2. Using an appropriate diagram explain why consumers in a country are disadvantaged by the imposition of tariffs or import quotas.

3. Using an appropriate diagram, explain a fall in the exchange rate and explain what might bring this about.

4. Using an appropriate diagram, explain a rise in the exchange rate and explain what might bring this about.

5. Explain why fiscal policy is weaker in an open economy with a floating exchange rate.

6. Explain why monetary policy is stronger in an open economy with a floating exchange rate.

7. Explain why monetary policy is emasculated in an open economy with a fixed exchange rate.

8. Why might borrowing overseas at interest rates lower than domestic interest rates to fund your investment expenditure be a risky strategy?

Reference no: EM131388528

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