There are two parts to this assignment.
Part A
Question 1:
The market for 3-star beef mince in a particular country is assumed to be in equilibrium.
(a) Construct a supply and demand diagram which identifies equilibrium price and quantity for 3-star beef mince in this market. Your answer will not contain data or numbers but will show how supply and demand interact to generate prices and quantities. Call this initial equilibrium price P0 and the initial equilibrium quantity
(b) Use the same diagram as in (a) to show the effect of the following changes, ceteris paribus, on the market of 3-star beef mince (just one diagram showing all of i, ii and iii below) that the single end result is a new equilibrium price P1 that is lower than P0. Assume the 3-star beef mince as an inferior good. Explain your answer. (10 marks)
(i) Price of a substitute good in consumption is decreased in the market;
(ii) Producers’ expectations of low future prices for 3-star beef mince;
(iii) Consumers’ income increased.
2:
Mr Albert grows corn and wheat in his farm.
- a) Use the data in the following table to draw a production possibilities frontier (PPF) for the farmer's business.
- b) Which of the choices is not efficient?
- c) If Mr Albert uses are higher yield variety for wheat, how would it be expected to shift the production possibility frontier? Illustrate the shift in the PPF from the initial PPF developed in part a).
3:
(a) Given the equation below, construct a supply and demand diagram for a product which identifies a market equilibrium price of $5.00 and a market equilibrium quantity of 40 units. At the price of $10.00 the quantity demanded by consumers is zero.
(b) Use the same diagram as in (a) to show the imposition of a $2.00 tax on consumers of the product. What are the new consumers and producers’ prices and quantity traded?
(c) How much of the tax is borne by sellers and how much of the tax is borne by consumers?
(d) Calculate the tax revenue received by the government and show this area on your diagram.
(e) Calculate the deadweight loss and show this area on your diagram.
4:
- a) Draw each of the following curves on a single diagram, for a farm.
Average variable costs
Average total costs
Marginal costs
Average fixed costs
- b) Using new diagrams, illustrate and explain what happens, ceteris paribus, to the curves in part a for each of the following cases when:
(i) An decrease in the price of fuel used to operate the machinery in the farm
(ii) An increase in the use of fertilisers that results in increased outputs produced in the farm
Part B: Multiple Choice
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