QUESTION 6

Reective Assessment 1: Due date Week 2: Session 4 Details Total = 25 marks. Marks will be converted to 30 per cent. STUDENTS MUST HAND IN ASSIGNMENT IN WORD OR PDF FORMAT USING THE DROP BOX. THE ASSIGNMENT MUST BE TYPED BUT THE GRAPHS CAN BE HAND DRAWN. NOTE: Student must explain their answers in detail to be awarded good grades. Graphs should be used wherever possible to support the explanation QUESTION 1 a. b. Assume that you have the option, not in order of preference, of going to a movie, playing soccer, or sleeping in. Define and explain the concept of opportunity cost using these options. 1.5 Marks Opportunity cost refers to the value of the foregone best alternative. The three choices are going to the movie, playing soccer, or sleeping in. Each of these choices offers their own level of satisfaction. In making a choice of going to the movie, the opportunity cost is what I would have gained from playing soccer as well as sleeping in. This could be for instance the hours I would have spent doing these alternative activities. If I make a choice of playing soccer, the value of the foregone best alternatives which are watching a movie as well as sleeping in would be my opportunity cost e.g., the hours I would have spent sleeping as well as the fun I would have had by watching the movie. If the choice that I make is sleeping in, then what would have been the benefit I would get from watching a movie as well as playing soccer would be my opportunity cost e.g., staying fit and enjoying my evening by watching the movie. Describe an occasion where the concept of opportunity cost applied to you. 1 Mark An example of when opportunity cost applied to me was when I chose university and getting a degree rather than taking a job. My opportunity cost was the wages I would have earned during that period if I chose a job rather than going to university and getting a degree which allows me to get a rather well-payingjob. QUESTION 2 a) Explain with examples the difference between a normative and a positive statement. 1 Mark Positive statement: refers to statement that can be easily tested, rejected, or even changed by examining it against facts. Positive statements are divided into two categories The first category is a hypothesis for example'; youth unemployment is due to a decline in GDP. This statement can be tested easily through examination of data on GDP and unemployment The other category is fact statement, for example its cold. Normative statement: refers to a statement that is subjective of opinion which can hardly be tested. For example, 1. The company should expand the minimum wage. 2.The organization profits are too high. In broader sense, positive statement can be tested while normative statement cannot be tested. B) Explain with examples the difference between correlation and causation. 1 Mark Causation: The act of making something or a situation to be the way it is. Causation also refers to what makes something or a situation to happen, that is, when situation A happens, situation B takes place. Therefore, A is the causation of B. Example: The causation of the increase in sales was the change in the sales management team and the advertising techniques. In this example, a change in the sales team and advertisement techniques resulted to increased sales. Correlation: This is a description of how two variables relate with one another; how a change of one variable affects the other. We have an inverse correlation whereby an increase in one variable leads to a decrease in the other variable. Example. An increase in the number of workers leads to a decrease in the number of hours required to produce a certain item. The number of workers and the number of hours have an inverse correlation. QUESTION 3 a. With the support of graphs, use demand and supply analysis to explain the effect on the price and quantity of beef from the following events. (Assume ceteris paribus for each of the event). I. A 50 percent fall in the price of lamb, assuming lamb is a substitute for beef. A substitute good is a good for which an increase in the price of one good leads to a fall in the quantity demanded of a related good, vice versa. In this problem, if lamb is a substitute for beef, then a fall in the price of lamb decreases the demand for beef since lamb is more affordable. So, consumers will buy more lamb than meat. As a result, this shifts the demand curve of beef to the left, indicating a reduction in demand. Both the equilibrium price and quantity of beef decrease. II. A decrease in consumer income, assuming beef is an inferior good. An inferior good is a good for which an increase in income leads to a fall in the demand, vice versa. If consumer income decreases, and beef is an inferior good, then we can expect an increase in the demand for beef since people preferred it more when their income falls. 50, as a result, the demand curve for beef shifts to the right. This shows the increase in demand. As a result, both the equilibrium price and quantity increase. b) The governments has ordered the mass slaughter of cows due to mad cow disease. Since there is a disease affecting cow, then this leads to fall in the supply of beef in the market. This reduction in supply shifts the supply of beef to the left. This raises the equilibrium price and decreases the equilibrium quantity of beef in the market. 2+2+2=6Marks In Australia, there has been an increase in the number of new units built because of an increase in the demand for these units. With the support of graphs, use demand and supply analysis to explain the possible impact on the market price and quantity of new units. (Hint: There is more than one possibility) 3 Marks: If demand and supply change in the same direction, the change in the equilibrium output can be determined, but the change in the equilibrium price cannot. In this case both demand and supply shifts to the right. This has led an increase in quantity (Q1 to 02), but price has stayed the same. It is possible, that if there is an increase in demand (01 to DZ) this encourages firms to produce more and so supply increases as well. QUESTION 4 In a market, is it possible for both the price and quantity purchased of compact disc to decrease at the same time? Use graphls) to support your explanation. 2 Marks Reflect and explain on an occasion where you have purchased less units even though the price has decreased. 1 Mark Assuming the price of flour reduces, since if you buy more of it, it will expire, I will still buy fewer packets of the maize flour. QUESTION 5 a. Assume that law enforcement agencies were recently very successful in arresting several major cocaine suppliers. Use graphical demand and supply analysis and the concept of price elasticity of demand to support your written explanation on the impact on price, quantity, and total revenue, if it is assumed that the demand for cocaine is i. Elastic ii. Inelastic 2* 2 = 4 Marks How can you apply the concept of price elasticity of demand in your business pricing policy? 1.5 Marks QUESTION 6 Explain with the support of a graphls), how a government can legislate price to protect farmers from price fluctuations? In your answer, address how the government can reduce the negative impact of such a policy. 3 Marks