Assignment Task:

Use the demand schedule for computer chips in Table 1 to answer parts (a) and (b) below. 

a. What happens to total revenue if the price falls from $400 to $350 a chip and from $350 to $300 a chip? 

b. At an average price of $300, is the demand for chips elastic, inelastic, or unit elastic? Explain your answer, using the total revenue test. 

Use the following information to answer parts (c), (d) and (e). 

When Kritia’s income was $3,000, she bought 5kgs of rice and 2kgs of beef a month. Now her income is $5,000 and she buys 4kgs of rice and 3.5kgs of beef a month. 

c. Calculate Kritika’s income elasticity of demand for beef. Show all working steps. 

d. Calculate Kritika’s income elasticity of demand for rice. Is rice normal good or inferior good? Show all working steps. 

e. The price of beef has increased by 15% whilst Kritika’s income remains constant. Given your answer to part (d), how will Kritika respond to the price increase. Illustrate your answer with a demand and supply diagram of beef. (Hint! No claculation required) 

Question 2  Suppose we can divide all the goods produced by an economy into two types: consumption goods and capital goods. Capital goods, such as machinery, equipment and computers, are goods used to produce other goods. 

a. Use a production possibility frontier graph to illustrate the trade-off to an economy between producing consumption goods and producing capital goods. Briefly explain why the curve is likely to be concave (i.e. bows out from the origin). 

b. Suppose that a technological advance occurs that affects the production of capital goods but not consumption goods. Show the effect on the production possibility frontier. 

c. Suppose that country A and country B currently have identical production possibility frontiers, but that country A devotes only 5 per cent of its resources to producing capital goods over each of the next 10 years, whereas country B devotes 30 per cent. Which country is likely to experience more rapid economic growth in the future? Illustrate using a production possibility frontier graph. Your graph should include production possibility frontiers for country A today and in 10 years, and for country B today and in 10 years

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Question 3  Bush fires and drought have destroyed banana farms in Australia. Manufacturers of banana products are discussing ways of averting a projected shortfall in banana. The manufacturers are teaming up with farmers to trial a new specie of banana that could mature in three months. 

With the aid of the demand and supply diagram, answer the following questions: 

a. Analyse the impact of the bush fires and drought on the supply of banana. 

b. Suppose demand for banana products increases soon after the drought and bushfires. Analyse the effect on the equilibrium quantity and price of banana. 

c. Analyse the effect on the equilibrium quantity and price of banana, if the trial of the new specie is successfully. Clearly state any assumptions you make.

 

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  • Posted on : June 15th, 2019

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