Intermediate Economics!

Short Answers and Calculations (60marks) Section A: Chapter 1-4 Production possibilities data: Use the information provided in the schedule below to answer the questions that follow A B C D E Capital goods 10 20 30 40 Consumer goods 200 180 140 80 0 1. . What happens if we produce 140 units of consumer goods and 30 units of capital goods? 1mark 2. What happens if we produce 140 units of consumer goods and 10 units of capital goods? 1mark 3. What is the opportunity cost if the economy decides to specialize in the production of capital goods? 1mark 4. Define externalities and provide example to support explanation. 2marks 5. Using supply and demand analysis, states the non-price determinant affected and then explains and illustrate graphically the effect of the following situations. 4marks a. An increase in the cost of farm equipment used by tomato farmers.18. Explain any of the TWO requirements a firm must adhere to practice price discrimination. 2marks 19. Define mutual interdependence and its relevance to the oligopoly. 2marksArticle 2: Internet increases competition in global marketplace The rise of the Internet as a global means of communication has led many commentators to argue that the ability of internet users to connect with business and consumers anywhere in the world as easily as they might communicate with their next-door neighbor means that the potential for international competition between rms has increases enormously. In other words, the internet is increasing global competition and promoting the efficiency gains that are an acknowledged income of competitive markets. In a paper to an 'Electronic Consumer' conference in NZ, the former deputy chairperson of the ACCC, Allan Asher drew the following implications for global competition from the internet revolution. "It seems almost certain that online markets and other forms of electronic commerce will expand rapidly to the point where a truly global retail marketplace will emerge. Already some industries are feeling the effects of these new technologies, especially those which are essentially information and booking services.... This global electronic market will present both tremendous opportunities as well as some very real challengers for regulators, industry and consumers.... Indeed, electronic commerce and online commerce especially has the potential to close the gap which so often exists between idealized economic models of perfect competition and the imperfect way that many markets actually work in practice....online commerce can do this by increasing competition amongst suppliers and by decreasing the opportunity and transaction costs faced by buyers in gathering and processing information... Electronic commerce has the potential to deliver significant gains to consumers in terms of price, quality and service through increased competition. This is likely to happen for two interrelated reasons lower barriers to entry and increased numbers of suppliers competing in product markets. Traditionally, local or geographic monopolies have persisted because of high barriers to entry linked to large establishment [fixed] costs in such areas as physical infrastructure, distribution networks and advertising. The internet and to a lesser extent other electronic service delivery channels, lower barriers to entry significantly for providers of many products and services ..... Since the internet allows newer and small players to promote and sell products in direct competition with larger players, it will increase the number of competitors in the market. Consumers can now tap into a global market and are not bound to a restricted number of physically nearby suppliers improved choice, price, quality should result. a. How does the author of the above material see the internet changing the extent to which markets conform to the three assumptions of the perfectly competitive market structure? 3marks b. Why do you think the author welcomes to the possibility that the internet will close the gap between market structures observed in the real world and the idealized model of perfect competition? Zmarks b. Government decides to do a cost of living adjustment of 10% on the Government workers pay. Section B: Elasticity of Demand and Supply 6. Consider two goods A and B with income elasticity of demand -2.5 and 0.8 respectively. During recession where consumers' income generally decreases, both sellers of A and B will earn higher revenue. Do you agree or disagree? Explain your argument. 2marks 7. Which of the following goods and services has the higher price elasticity of demand? Explain your answer. a. let skis or toothpicks 1mark b. Holidays in NZ in the short run or in the long run 1mark 8. Why would government prefer to impose tax on goods with inelastic demand? Explain your answer using an example. 2marks Case 1 Case 2 Case i Price Price S Price S D Quantity Quantity Quantity 9. A new sales tax (for example $1 per piece) is introduced a. Who bears the tax in the cases 1, 2 and 3? 3marks b. Describe the relationship between price elasticity of demand and tax incidence. 2 marks 10. List any of the TWO other determinants of Price Elasticity of Demand. 2 marks Article 1: How will scientic research output respond to a policy-induced increase in its demand? Today's knowledge-based globalized economies rely heavily on scientific research output to ensure continuing high productivity growth. Seeking to promote growth in their domestic economies, governments around the world subsidize scientific research in many different ways. One way to increase scientific research would be to implement policies designed to increase demand for scientific research for example, by paying a subsidy to purchasers. Such an increase in demand would be expected to lead to an increase in quantity supplied of scientific research and its market price. But how successful would such a policy be? Would the price rise caused by an increase in demand be associated with a relatively large or relatively small increase in scientific research output? In other words, is the elasticity supply of scientific research high or low? Some clues to the answer to this question can be found in the estimate, contained in a US study, that a 100 percent increase in the number of research scientists would give little more than a 50 percent increase in research output. Further increases in the number of scientists would increase output by an even smaller proportion. The fundamental argument is that the best research scientists are already in the industry any increase in the number of scientists would involve employment of researchers with lower skills than those already employed. Using the above clues and assuming that the wage rate paid to all research scientists is the same, answer the following questions: i. If, as the demand for scientific research output increases, the companies and institutes undertaking this research respond to this increase in demand by employing more researchers, is the supply of research output likely to be elastic or inelastic? Explain Zmarks ii. As output increases further, does supply elasticity become smaller or larger? 1mark iii. Is the elasticity of supply of scientic research output likely to increase over a six month period? Over a 10-year period? Explain 2marks Section C: Production costs 11. Suppose there's a firm that manufactures umbrellas. The table on the following page displays some of its cost structure. [Show your work and calculations] Quantity of umbrellas ii. As output increases further, does supply elasticity become smaller or larger? 1mark iii. Is the elasticity of supply of scientic research output likely to increase over a six month period? Over a 10-year period? Explain 2marks Section C: Production costs 11. Suppose there's a firm that manufactures umbrellas. The table on the following page displays some of its cost structure. [Show your work and calculations] Quantity of umbrellas a. What is the total fixed cost of producing 2 umbrellas? 2marks b. What is the marginal cost of the sixth umbrella? 2marks c. Calculate the average fixed cost of the fifth unit. Show your work. 2marks d. Calculate the total variable cost and the average variable cost of producing 8 units. Show your work. 2 marks 12. Explain why the average total cost curve and the average variable cost curve move closer together as output expands. 2marks 13. Different between Accounting and Economic Profit. Use the data below to prepare a Statement of Accounting profit vs. Economic profit. [Use a blank page to write your answer]4 marks Total Revenue 500000 ii. Explicit Costs: wages and salaries 400000 raw materials 50000 interest on loan 10000 other payments 10000 iii. Implicit Costs: foregone salary 70000 foregone rent 10000 foregone interest 5000 Section D: Market Structures 14. Define natural monopoly? Name one monopoly in Samoa 2marksSection D: Market Structures 14-. Dene natural monopoly? Name one monopoly in Samoa 2marks 15. Explain why Oligopolistic market decisions are more difficult compare to other market structures? Use a local example to support your explanation. 2marks 16. List and explain any THREE strategies 3 furniture firm in monopolistic market uses to differentiate its products? 3marks 17. Explain some of the gains and challenges from collusions under oligopoly. State an incentive to cheat a cartel agreement by a member 3 marks