the price of rice in Japan is $5 per kilogram and Japan produces 40 million tonne of rice a year. Suppose now that Japanese government provides production subsidy of $2 per kilogram to domestic rice farmer
Paired Assignment T315 BUS102 Introduction to Microeconomics Questions, Notes & Guideline for Paired-Assignment Due 12 January 2016 Topic Three Problem-Solving Questions that require written answers 1. General information 1.1 This paired-assignment is worth 25 per cent of total assessment and is to be submitted by 7.00pm, Tuesday 12 January 2016. There are 3 questions and answer all 3 questions. Question 1 is worth 20 marks, and Question 2 and Question 3 are worth 15 marks each, consisting total of 50 marks all together. Then the marks will be converted to a total of 25 mark scale to be uploaded in Moodle for 25 per cent of your total course assessment. A hard copy of the assignment must be submitted to KOI Librarian in Kent street campus by 7.00pm, Tuesday 12 January 2016. You must keep the copy of receipt after the submission for your own record. You are also required to upload an electronic copy of the assignment in Moodle Turnitin by 7.00pm, Tuesday 12 January 2016. Late submission will attract loss of 5 marks out of 25 marks (20 per cent), and the assignment submitted after 7.00pm Thursday 14 January 2016 will not be accepted and marked zero. 1.2 This assignment is a paired-assignment (2 students). One-person or more than two-people assignment will be heavily penalized, being marked out of 15, not 25 (a 40 per cent loss). 1.3 Names and ID numbers of both students must be clearly printed on the Assignment Cover Sheet. A member, who has not contributed to the discussion and assignment, must be marked as \"Not contributed\" in a bracket following the student's name and ID. 1.4 You must follow an appropriate format explained below. Not following appropriate format will cause a loss of some marks. All written answers must be clearly typed and printed. Hand-written answers will NOT be accepted. All assignment questions and sub-questions must be typed in order at the heading. Separate each main question by different page. For example, if Question 1 (a) (b) (c) and (d) are answered on pages 1-2, then start Question 2 on page 3, etc. If not following, it will attract a loss of some marks. The answers must be written clearly and concisely with the main points only, and avoid irrelevant points. You must analyse, explain and show how and why you draw your answers. Providing just answers without explanation will not receive full marks. BUS102 Microeconomics T315, Paired-Assignment due 12 January 2016 Page 1 Paired Assignment T315 You must also draw and include appropriate and relevant graphs and tables together in your explanation. Draw them using Microsoft Power Point/Word/Excel, NOT handdrawn. 1.5 Copying the assignment contents from other paired-assignment team(s) is a serious violation of copy right. It will be penalized and attract a VERY heavy loss of marks - \"Fail\". Please remember that it is not difficult to identify the contents that are copied from other team(s). Write the answers in your own English words. Please make sure that nobody in your team shows your assignment to other team(s). Both who show the assignment and who copy the assignment will lose their marks heavily and fail in the assessment. 1.6 Each paired-assignment team must have a coordinator, who will submit a hard copy of the assignment to a KOI librarian and upload an electronic copy of the assignment in Moodle Turnitin. Only ONE COPY of the assignment from each paired-assignment team is required to be submitted (& uploaded). 1.7 Make sure you discuss and work together for ALL THREE questions and MUST read and check the assignment before submission, once completed. BUS102 Microeconomics T315, Paired-Assignment due 12 January 2016 Page 2 Paired Assignment T315 2. Assignment Questions Question 1 - 20 marks Part A: Answer the following questions. Australia produces ethanol from sugar cane, and the land used to grow sugar cane is used to grow food crops. Suppose that Australia's production possibilities for ethanol and food crops are as in the table. Ethanol (barrels per day) 70 64 54 40 22 0 (a) If Australia increases its production of ethanol from 40 barrels per day to 54 barrels per day, what is the opportunity cost of an additional barrel of ethanol? (2 marks) Food crops (tonnes per day) 0 1 2 3 4 5 (b) Does Australia face an increasing opportunity cost of ethanol? What feature of Australia's PPF illustrates increasing opportunity cost? Explain. (2 marks) The table sets out the demand and supply schedules for banana. (c) Suppose a cyclone destroyed some banana farms in QLD and the quantity of banana supplied decreased by 100 boxes a week at each price. But at the same time the demand for banana increased by 100 boxes a week at each price. Explain what would happen to the market supply and demand curves? How and why would the market equilibrium price and quantity adjust at the end? What would be the new equilibrium price and quantity? Draw a graph and illustrate the changes on your graph. (4 marks) Price (dollars per box) Quantity demanded 12 10 8 6 4 2 BUS102 Microeconomics T315, Paired-Assignment due 12 January 2016 Quantity supplied (boxes a week) 100 200 300 400 500 600 800 700 600 500 400 300 Page 3 Paired Assignment T315 Part B: Answer the following questions. (d) When Yeon's income was $2,200, he bought 5 kgs of rice a month. Now his income is $3,300 and he buys 4.75 kgs of rice a month. Calculate Yeon's income elasticity of demand for rice. Show your calculation. Is rice income elastic or inelastic? Is rice normal good or inferior good? (3 marks) Suppose an outbreak of mad cow disease cuts the quantity of beef demand by 10 per cent. (e) If the price elasticity of demand for beef is -1.25, by how much would the price of beef have fallen if the demand for beef increased by 10 per cent? Show your calculation. (3 marks) (f) Market analysts estimate that the change in the price of beef will decrease the price of pork by 20 per cent and decrease the quantity demanded for beef by 10 per cent. What is the cross price elasticity of demand for beef with respect to the price of pork? Does the elasticity indicate that beef and pork are substitutes or complements? (3 marks) (g) Market analysts estimate that, a 10 per cent increase in the change in the price of pasta sauce will decrease the quantity of spaghetti noodle demanded by 6 per cent. What is the cross elasticity of demand for spaghetti noodle with respect to the price of pasta sauce? Does the elasticity indicate that spaghetti noodle and pasta sauce are substitutes or complements? (3 marks) BUS102 Microeconomics T315, Paired-Assignment due 12 January 2016 Page 4 Paired Assignment T315 Question 2 - 15 marks Part A: Answer the following questions. The table shows the demand and supply schedules for US wheat market. The US Farm Bill 2012 indicates that the domestic price of wheat will be set at $300 per tonne, which is above the market equilibrium level of $250 per tonne, in order to support for domestic wheat growers. At the market equilibrium, 1,000 kilo tonnes (Kt) are supplied. (a) The US Farm Bill 2012 indicates that the domestic price of wheat is set at $300 per tonne, which is above the market equilibrium level of $250 per tonne, in order to support for domestic wheat growers. On a graph, show if it creates a shortage or a surplus in the market for wheat, and explain why and by how much. (2 marks) Price (dollar per tonne) 100 150 200 250 300 350 400 Quantity demanded (kilo tonnes) 2,000 1,400 1,200 1,000 800 600 0 Quantity supplied (kilo tonnes) 0 600 800 1,000 1,200 1,400 2,000 (b) On a graph, explain how the price control in the US would change the consumer surplus, producer surplus, and deadweight loss in the domestic wheat market. Assume that the US does not trade wheat internationally. Also, calculate the changes in consumer surplus, producer surplus and deadweight loss. (Remember 1 kilo tonne = 1,000 tonnes) (8 marks) BUS102 Microeconomics T315, Paired-Assignment due 12 January 2016 Page 5 Paired Assignment T315 Part B: Answer the following question. The price of rice in Japan is $5 per kilogram and Japan produces 40 million tonnes of rice a year. Suppose now that Japanese government provides production subsidy of $2 per kilogram to domestic rice farmers. (c) Draw a graph and analyse what would happen to the domestic supply of rice and supply curve, consumer price of rice and domestic demand for rice, and cost of rice production. Also explain why such a production subsidy is likely to be troublesome. (5 marks) BUS102 Microeconomics T315, Paired-Assignment due 12 January 2016 Page 6 Paired Assignment T315 Question 3 - 15 marks Part A: Answer the following questions. Korea imports a large quantity of beef. With no beef trade, Korea's equilibrium price for beef was $8 million per kilo tonne and equilibrium quantity was 375 kilo tonne. If Korea opens its beef market to trade with no tariff, domestic demand would be 625 kilo tonne and domestic supply would be 125 kilo tonne at the world price of $4 million per kilo tonne. However, Korea currently imposes 40 per cent tariff rate on all imported beef. With 40 per cent tariff, Korea's domestic supply and domestic demand were 250 kilo tonne and 500 kilo tonne respectively in 2013. Assume that intercept of supply curve is $2 million and demand curve is $15 million per kilo tonne.
(a) Analyse the effects of 40 per cent tariff rate on the price of beef in Korea and Korea's beef imports in comparison with no tariff case. Provide numeric details. (2 marks) (b) Draw a graph and clearly show how the areas of gains and losses from the trade with 40 per cent tariff rate would change before and after the tarif with brief explanation. Then, calculate the actual value of change in consumer surplus, producer surplus, tariff revenue and the amount of deadweight loss. Show your calculation. (8 marks) BUS102 Microeconomics T315, Paired-Assignment due 12 January 2016 Page 7 Paired Assignment T315 Part B: Answer the following question. (c) ProPainters hires students at $250 a week to paint houses. It leases equipment at $500 a week. The table sets out its total product schedule. Calculate and construct ProPainters' cost schedules - that is, total cost (TC), average fixed cost (AFC), average variable cost (AVC), average total cost (ATC) and marginal cost (MC) per house painted. Briefly explain how you calculate each cost schedule and show your calculation. (5 marks) Labour (workers per week) 1 Output (houses painted per week) 2 2 5 3 9 4 12 5 14 6 TC (dollars) AFC (dollars per house) AVC (dollars per house) 15 BUS102 Microeconomics T315, Paired-Assignment due 12 January 2016 ATC (dollars per house) MC (dollars per house) Page 8
