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ECO501/ECO511 Assignment 2

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Question;ECO501/ECO511 Assignment 2 [40%],Length: no more than 2500 words (including graphs, tables etc). Font size: 12, Margins: 2.5 cm on all sidesSubmission date: 18 January 2014. PART AActivity 1. [30 marks]You are given the following information in relation to the market demand and supply of Ford cars:Ford Cars: Market Demand and SupplyPrice ($) Quantity demanded/sold Quantity supplied Price elasticity of demand Total Revenue20,000 40,000 10,000 25,000 35,000 15,000 30,000 30,000 20,000 35,000 25,000 25,000 40,000 20,000 30,000 45,000 15,000 35,000 50,000 10,000 40,000 (i) Draw the market Demand and Supply curves (on the same graph) for Ford. [5 marks](ii) What is the market equilibrium price and quantity? [5 marks](iii) Explain what you will observe in the market if the Ford car price is set at a higher than equilibrium price. [5 mark] (iv). Suppose you are managing director of Ford Australia, and you are wondering whether or not to cut the price of Ford cars to increase your total revenue from sales. Explain how your knowledge of elasticity of demand can help you make this decision. Complete the last two columns of the above table and also draw a graph to explain your answer. [8 marks] (v). Suppose car industry is very competitive and Ford has been losing its competitiveness in the car market. Suppose that the government is providing substantial financial support to Ford manufacturers with the view that it will improve Ford?s competitiveness. Evaluate the merits and demerits of this government policy measure. [7 marks]Marking Criteria: To obtain full marks, you need to demonstrate clear understanding of the subject content covered/related to this activity. You need to explain where relevant how the knowledge can be used to make price/revenue decision. You also need to demonstrate your ability to use your content knowledge to make decisions in the real world scenarios. Use of correct, complete and relevant graphs is part of the skills/abilities expected. Practice work for the above activity (1):? Study Guide Topic 2, Self assessment questions 2, 3 and 4.? Textbook: Chapter 3, REVIEW QUIZES on p. 63.? Textbook: Study Plan Problems & Applications No. 11, p. 76 and Additional Problem & Applications 21-27, pp. 77-78, ? Textbook: Pages 83-84, REVIEW QUIZES 2-3, p.86,Activity 2: [30 marks](i). Explain the difference between accounting profit and economic profit. Include discussion of the distinction between explicit and implicit costs and how they relate to economic cost and opportunity cost. [5 marks](ii). Suppose your aunt is thinking about opening a hardware store. She estimates that it would cost $ 500,000 per year to rent the store and buy the stock. In addition, she would have to quit her $ 510,000 per year job as an accountant.What is your aunt?s opportunity cost of running a hardware store for a year? If your aunt thought she could sell $ 510,000 worth of merchandise in a year, should she open the store? Explain.[5 marks](iii). Compare and contrast the two market structures: Perfect Competition and Monopoly, in line with main characteristics of them. Comment of the Price and profit maximising output level in the two structures. [5 marks] (iv). Which market structure is considered to be more efficient? Justify your answer [3 marks](v). List down two closest real world examples for each of these market structures. [2 marks](vi). Do you believe that the government should intervene to control the monopoly power in the market. You need to argue for/justify your answer. [5 marks](vii). In a free market system, why does the government have to provide certain goods and services using tax payers money? Is there any justification? Explain providing examples. [5 marks]Marking Criteria: To obtain full marks, you need to demonstrate clear understanding of the subject content covered/related to this activity. You also need to explain where relevant how the knowledge can be used to make decisions in the real world. Make sure that you use correct, complete and relevant graphs to explain your answers. Any justifications need to be made based on the subject content (theory/concepts) related to this subject. Use of correct, complete and relevant graphs is part of the skills/abilities expected.Practice work for the above activity (2):? Study Guide Topic 1: Self assessment questions 1 and 2, Study Guide Topic 4.1, Self assessment questions 1, ? Textbook: REVIEW QUIZEs 1-5, p.284, REVIEW QUIZES 1-3 p.307 and REVIEW QUIZES 1-3 p.311, Study Plan Problems & Applications 7-8, p. 327, ? Textbook: REVIEW QUIZEZs 1, 3, and 4, p.219, REVIEW QUIZEZs 1-4. P.224, Study Plan Problems & Applications 6-10, p.235.? Textbook: REVIEW QUIZEZs 1, 3, and 4, p.176, and REVIEW QUIZEZs 1 and 4. P.180, Additional Problems & Applications 17,p.191.PART B [40 marks]Activity 3:Section I: [20 marks](i). (a). What is gross domestic product (GDP) and what is the use of it? [5 marks] (b). Comment on how well this measure serves its intended purposes. [4 marks]Practice work for the above activity:* Textbook: REVIEW QUIZEs 1 and 2, p.400, REVIEW QUIZE 1, p.409, read pages. 407-408. Additional Problems and Applications, 27-28, p.419, (ii). (a). What is unemployment [2 marks] (b). Can a country achieve a 0% unemployment rate, Explain [5 marks]Practice work for the above activity:* Textbook: REVIEW QUIZEs 1 ? 4, p.429, Study Plan Problems & Applications 1 ? 4.(iii). (a). What is inflation, and how it is calculated [4 marks]Practice work for the above activity:* Textbook: REVIEW QUIZEs 3, Study Plan and Applications 12-16, p.440, Additional Problems and Applications 33 and 34, p. 442.Section II: Essay Question: [20 marks]Explain why inflation is a main concern for an economy, and examine how well inflation in Australia has been managed by the monetary authority over the last 10-15 years.To do the above activity, you need to read relevant chapters in your text book to get theoretical/conceptual understanding of the subject matter and read outside the textbook/Study Guide to examine the Australian case. These readings may include published research papers/articles, reports, reviews in the media and any other materials published with authority.In borrowing/extracting the ideas from other sources, you must properly acknowledge it. This means that you need to prepare a list of references at the end of Essay question.Marking Criteria: To obtain full marks, you need to demonstrate clear understanding of the subject content covered/related to this activity. You also need to explain where relevant how you can use content knowledge to make decisions in the real world. Any justifications need to be made based on the subject content (theory/concepts) related to this subject. Use of correct, complete and relevant graphs is part of the skills/abilities expected.To obtain full marks in the assignment, you also need to adhere to the following:* use correct terminology * stick to the word limit* Follow the Presentation guidelines as referred to in the Subject Outline

 

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