Question
1.1. If a price floor were imposed on a competitive market, what would be the effect on the producer surplus and total economic surplus areas?
1.1. If a price floor were imposed on a competitive market, what would be the effect on the producer surplus and total economic surplus areas? (Use a typical demand-supply curve diagram in your answer.) 1.2. Explain why the slope of the demand curve is important to determining the effect of the price floor on the change in the size of consumer surplus area. (You can use a diagram if you wish.) 1.3. Describe a situation where you think the imposition of a price floor would be acceptable.
2.1. Using average and marginal cost curves show a firm in a perfectly competitive market in long run equilibrium. (Draw a diagram and explain it.) 2.2. Using average and marginal cost curves show a firm in a monopolistically competitive market in long run equilibrium. (Draw a diagram and explain it.) 2.3. Use Payoff Matrix 1 to explain why it would be rational for each firm to charge the low price, even though both of them could make more profit if they both chose to charge to the high price. Payoff Matrix 1
firm y; high price | firm y: low price | |
firm x; high price | $5m, $5m | $0, $18 |
firm x: low price | $18m, 0 | $1,$1 |
3.1. Define "recession". When was Australia's last recession? 3.2. If annual real GDP growth is 8% and the annual inflation rate at 2%, what was the nominal GDP growth rate?
3.3. Is continuous economic growth desirable? Why or why not?
4.1. What are the main components of aggregate expenditure used to calculate nominal GDP? What are the main income categories used to calculate nominal GDP? 4.2. What is the link between cyclical unemployment, wage growth and the inflation rate? 4.3. What is price deflation? Is it desirable?
5.1. How can the government stimulate the economy in the short run? 5.2. What tends to happen to tax revenue and social security payments over the course of a business cycle? 5.3. Draw the Keynesian income-expenditure model of the economy showing the equilibrium level of real GDP below the full employment level of output. How could the RBA eliminate the cyclical unemployment? Show the effect diagrammatically.
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