Reference no: EM13341690

Short answer questions (references not needed) 

Question 1 

Pharmaceutical drugs have an inelastic demand, and computers have an elastic demand. Suppose that technological advance doubles the supply of both products (that is, the quantity supplied at each price is twice what it was). 

a. What happens to the equilibrium price and quantity in each market? 

b. Which product experiences a larger change in price? Which product experiences a larger change in quantity? 

c. What happens to total consumer spending on each product? 

Question 2 

Suppose you are thinking about opening a hardware store. You estimate that it would cost $500,000 per year to rent the store and buy the stock. In addition, you would have quit your $50,000 per year job as an accountant. 

a. Define opportunity cost. 

b. What is your opportunity cost of running a hardware store for a year? If you could sell $510 000 worth of merchandise in a year, should you open the store? Explain.

c. List some of your fixed costs and describe why they are fixed. 

d. List some of your variable costs and explain why they are variable. 

Question 3 

a. All along the central and northern coast of New south Wales there are motels offering basis accommodation –some of it within easy walking distance of the beach. During the school holidays and at other peak times the room rate is over $150 a night. But in the off-season, when the kids are back at school, one can find rooms for as little as $60 a night. Assume the average fixed cost of a room per night, including local government rates, insurance, taxes and depreciation, is $75. The average guest-related cost for a room each night, including electricity, water, cleaning service and linen, is $40. Would these motels be better off renting rooms for $60 in the off season or shutting down until the school holidays come round again? Explain your answer with proper graph/s. 

b. Give two examples of price discrimination. In each case, explain why the monopolists choose to follow this business strategy. 

Essay question (references needed) 

Question 4 

A persistent problem facing our society is the use of illegal drugs, such as heroin, cocaine and crack. Drug use has several adverse effects. One is that drug dependency can ruin the lives of drug users and their families. Another is that drug addicts often turn to robbery and other violent crimes to obtain the money needed to support their habit. To discourage the use of illegal drugs, many governments devote billions of dollars each year to reduce the flow of drugs into their countries. Suppose the Australian government increases the number of customs inspectors and police officers devoted to preventing imports of drugs. 

a. Using the concepts of demand supply and elasticity examine this policy of drug prohibition. What happens in the market for illegal drugs? Use appropriate graph/s to answer your question. 

b. Do drug bans increase or decrease drug-related crime? Explain. Use economic theories and empirical findings to support your arguments. 

(Hints: First, you can consider whether the supply or demand curve shifts; Second, the direction of the shift; Third, how the shift affects the equilibrium price and quantity). 

Assignment Requirements: 

1700 words 

Introduction 

This assignment is designed to assess your level of achievement in the following course objectives: 

1. demonstrate understanding of key concepts of economics; 

2. identify and interpret patterns evident in economic data presented in graphs and tables; 

3. explain and apply key economic concepts to business and economic decision making; 

4. evaluate selected instruments of microeconomic policy; 

5. explain major problems faced by economic and business managers in the 21st Century; and 

6. demonstrate academic research and writing, and critical analysis and thinking skills. 

The question is also intended to provide an example of the kind of ‘short answer’ and ‘extended response’ questions that will appear on the final examination paper. 

Please note the following points in relation to your answer: 

• Write about 1700 words in total (excluding reference list). While questions 1, 2, and 3 are in short answer format, the answer to question 4 should be in essay format, using the Harvard style of referencing (see Summers & Smith, chapter 2). 

• For the essay question, write concisely. Get to the point so you can include as many new ideas and arguments as possible. But remember, one point per paragraph and one idea per sentence. 

• For the essay question, write an introduction to say what you will discuss and a conclusion which sums up the discussion and clearly shows answers to all parts of the question. Remember, before you start writing, break the question into its parts so that you understand everything you have to do. 

• Edit your work. Do not repeat information except to summarise at the end. It is good practice for you to write in a way that provides maximum information in a minimum of space. This is what you are expected to do in the exam, though you won’t have to use references. Remember, the extended response section of the final exam comprises 20 per cent of your total mark for this course and some students just do not write enough solid and relevant material. 

• Use appropriate assumptions where required. These may help you to simplify any complexity. Selecting appropriate assumptions in economics is considered as a way of making an economic analysis (often called a model) simpler without affecting any of its important conclusions. 

• Use relevant diagrams wherever possible (for all questions). These are the conventional way in which things are discussed in economics. Fully label diagrams, shift parts of the diagrams to illustrate key points and then explain what is occurring. 

• Use the textbook to get started. Do some extra reading, from other introductory texts, the Web, newspapers or journals to expand on the initial reading. Your answer for question 4 should contain at least six different relevant references including at least one journal article. Reference the textbook when you use it for information.