Question 1:Debra can make either 12 cakes or 16 cookies in 4 hours. Sam can make either 6 cakes or 12 cookies in 4 hours.

a. Who has an absolute advantage at producing cakes and who has an absolute advantage at producing cookies? Briefly explain your answers.

b. State Debra's and Sam's opportunity costs of producing one cake and one cookie. Draw and place your answer in a table.

c. If both Debra and Sam concentrate on producing only the product in which they have a comparative advantage, how many cakes and how many cookies will they produce?

Question 2: a. Draw a figure depicting market equilibrium in the ice-cream market. Label the figure properly. Briefly explain the figure.

b. Draw a new figure depicting the following situation: The weather is suddenly unseasonably hot and at the same time the wage of ice-cream salespeople increases. Explain your figure, and report on your new equilibrium price and quantity. Question 3:

a. ABC Company produces 100 pendants per day. The total fixed cost for the plant is $5000 and the total variable cost is $15000 per day. Calculate the average fixed cost, average variable cost, average total cost and total cost at the current output level. (4 marks)

b. Calculate Economic profit and Accounting profit from the figures given below for ABC Company. (3 marks)

Total revenue $ 500,000

Wages and salaries $ 40,0000

Forgone salary $ 80,000

Interest paid $ 10,000

Forgone rent $ 10,000

Raw materials $ 50,000

Other payments $ 20,000

Forgone interest $ 7,000

Question 4:

Discuss which of the following fall into the categories of consumption, investment, government expenditure and net exports from the Y = C + I + G + NX (X - M) identity, and whether the impact is to increase or decrease GDP.

(a) Charles buys a second-hand textbook from Tim. (1 mark)

(b) When Charles bought the book, he paid Sarah $10 to collect it from Tim. (1.5 marks)

(c) Thomas buys a new house (1 mark)

(d) Your firm sells meat to Indonesia (1 mark)

(e) The fish and chips shop down the road buys fish to make meals for diners. (1 mark)

(f) The same shop buys a deep fryer to fry fish for meals. (1.5 marks)

Question 5: Week 10 Question 1, (7 marks) The ABS reported that in September 2007, a cycle peak, the working-age population was 16,808,200, the labour force was 10,979,300, and employment was 10,514,600. Calculate for that quarter the labour force participation rate and the unemployment rate. (3.5 + 3.5 = 7 marks)

Question 6:

Suppose, initially the Australian economy is at full employment (in other words the economy is at the potential GDP). Using AD-AS model, explain how would each of the following events affect the economy both in the immediate and in the long term.

a) A slowdown in China's economic growth due to the sub-prime crisis in the US. (3.5 marks)

b) Union wage settlements push the wage rate up. (4 marks)

c) An increase in consumer confidence. (3.5 marks)