1.

Using a production possibilities frontier (PPF) diagram, determine how does the PPF change in response to the following events:

Make sure to explicitly indicate what sectors you are representing, and what sort of assumptions each event implies (i.e., a neutral effect vs a sector-biased effect). The latter follows from your assumptions on the factor intensity of the sector you are representing.

a) Increasing skilled migration into the country

b) Imposing taxes on manufacturing (hint: define a two-sector producing economy,

manufacturing and services).

c) Decreasing the expenditure on research and development

d) Implementation of easier rules for foreign investment

e) The effects of a pandemic.

2.

Identify what sort of effects the following listed events have.

You are required to define the market under study (for example the labor market, oil market, etc). Explain whether the event acts on the demand or supply-side and whether the event leads to a quantity or price change, or leads to a shift in demand and/or supply. Make sure to explain what sort of assumptions you are making on the elasticities of demand and supply.

a) An increase in oil prices as a consequence of a price dispute in the world oil markets

b) The implementation of a minimum wage

c) The implementation of subsidies to milk producers in Australia

d) The implementation of a Carbon tax in the economy. A Carbon tax is charged according to the level of emissions of greenhouse gases in an economy.

e) The implementation of an increase in tuition in University studies.

3.

The Pear company sells a smart phone for $250. Its sales have averaged 8,000 units per month over the last year. Recently, its closest competitor Banana company reduced the price of its smart phone from $350 to $300. As a result, Pear's sales declined by 1,500 units per month.

(a) What is the cross price elasticity of demand between the Pear and Banana smart phone? Use the averaging formula. What does this indicate about the relationship between the two products?

(b) If the Pear company knows that the price elasticity of demand for its phone is -1.5, what price would the Pear company have to charge to sell the same number of units as it did before the Banana company price cut? Assume that Banana company holds its price of its phone constant at $300. Use the averaging formula.