### Subject Summary

Faculty of Business, Justice and Behavioural Sciences
School of Accounting and Finance

#### Assessment item 3 - Short Answers

Length: 1500 words (penalty for extra words)

Submission method options: Alternative submission method

Question 1

(a).  What is the opportunity cost of you doing the university degree?

(b)You may have noticed that the fuel prices at the pump have gone down since recently. Can you explain the economic reason(s) for this fuel price decline using a suitable graph(s).

(c). Many rental properties occupied by university students in bigger cities fell vacant since the government announced lock-down measures due to Covid-19. Briefly outline the impact of this on the rental property market in the bigger cities.

Question 2

(a).  The table below provides you a demand schedule for a particular brand of bread.

 Price (\$) Quantity of bread demanded  (millions per year) Total Revenue Price Elasticity of demand 2.00 50 2.50 45 3.00 40 3.50 35 4.00 30

(i). Fill in the Total Revenue and Price Elasticity of Demand columns [1 mark]
(ii) At what price the Total Revenue is at a maximum? [1 mark]

(ii).  Draw a Demand curve and a Total Revenue curve using the information in your completed table   [2 marks]

(iv).  Based on the 'Total Revenue Test' identify the two ranges of Demand curve within which the seller/producer should  increase or decrease the price in order to increase Total Revenue.      [2 marks]

(b). The price elasticity of demand is high for "Aarnotts biscuits" while price elasticity of demand is low for "fuel". Explain the reason(s) for this difference in elasticities. [2 marks]

(c). Suppose that the fare for an average train trip in Sydney city increased by 30% and as a result the demand for an average bus trip increased by 20%. What is the relationship between these two commodities?. Calculate the relevant elasticity coefficient.
(d).   How do you identify an 'inferior good' ?

Question 3

(a).
Peter started a lawn mowing business a few years ago in Bega.  Peter chose this business because it did not need a large investment of funds (capital) to start with compared to the other business that he had considered.  He has been doing well, making a maximum profit of \$25 an hour. However,  there has been a large number of new entrants into the lawn mowing business,  a result of the large number of job losses due to Covid-19.  At the same time, demand for lawn moving has declined, leading to a decline in price per hour of lawn mowing.  As a result, Peter's profit per hour has been falling and he has now needs to make a decision as to whether to stay in lawn moving business (at this point he is covering his variable cost (VC) only).  Identify the type of market structure that Peter operates in and explain using a diagram, the positive profits he made initially, and the current situation that he now finds himself in.

(b).
The "Glory Taste" is the one and only Coffee shop operating at the university during the winter season.  The Uni is 5 kms aways from any other  cafe or food shop.  What type of market does this particular coffee shop operate in?  What should be the profit maximising condition of "Glory Taste".  Would this condition be different to that of  Peter's profit maximising condition of his lawn mowing business under (a) above? Explain using diagrams of the two profit maximising conditions in the two market types.

Question 4

(a).
Briefly explain why public park facilities are provided by the government and not by the private sector.

(b).
A new report revealed that a factory near the town pollutes the environment. The government imposed a condition on this factory under the 'environment law' applicable to the town. It cost several millions for the owners of the factory to fix the pollution issue. However, the factory management was able to pass the majority of this cost on to the consumers through an increase in the unit price of the product that they produce. Using a graph, explain briefly whether this end result has been a socially efficient outcome.

Answer all four (4) questions.  Use diagrams where appropriate to explain your response.  Provide supporting evidence and references where appropriate to justify your arguments. Use  up to about 400 words to answer to one question subject to a total word limit up to 1500 words.
##### RATIONALE

This assessment task will assess the following learning outcome/s:

• be able to apply economic concepts and principles to daily life.
• be able to explain the economic decision making of producers and consumers and their interaction in the market place.
• be able to construct graphs and diagrams to demonstrate how economic concepts and principles work in practice.

This Assessment covers the content in  first three Topics