Trine University Micro and Macro Economics Questions

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Question Description

Micro and Macro economics questions needs to be answered.

We have to answer 5 questions from micro and 5 from Macro.


Also, please add the referrences seperately.


Thank you. and no plagarism.

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Microµ economics Assignment Semester 2, 2019 Micro eco: Business Economics BUECO 5903 Instructions for Candidates: 1. Choose any five (5) of the following nine (8) questions; 2. Each question is worth ten (10) marks; 3. Please type your assignment; 4. All diagrams and direct quotations must be referenced as per the course description specified method. 5. Please use the numbering system as provided on this document to identify the questions. Question 1: Explain the meaning of market equilibrium for the market for rental accommodation show your answer with a diagram If the government decided to impose rent control in Australia’s capital cities as a way to prevent rising rents what might happen. Use a supply and demand diagram to show the effects of this action. What would landlords do as a response? Is rent control a valid solution? (Diagram essential 2 marks and 8 marks to answer the two set questions) Question 2 Explain the impact of the following events on the peanut industry (Use Supply and demand diagram in your answer): a) The price of fertilizer used in growing peanuts rises b) Consumers’ tastes change so that they now prefer popcorn to peanuts c) A drought reduces the productivity of land used to produce peanuts d) Doctors find that peanuts are bad for the overall general health (2.5 marks per each part) Question 3 Suppose the price elasticity of demand for railway travel is elastic. If the rail authority wants to raise revenue from fares, should it raise them or lower them? You might illustrate your answer with a diagram (10 marks for comprehension of the question along with a diagram) Question 4 3 Using diagrams in your answer what are the possible circumstances under which the burden of an excise tax would be borne i) entirely by consumers ii) entirely by producers. ( 5 marks per each part including diagrams) Question 5 How do the diminishing marginal returns to scale differ from diseconomies of scale? What is the difference between a firm’s explicit costs and implicit costs? (5 marks per each part) Question 6 What is the difference between the price elasticity of demand and the income elasticity of demand? What does the cross elasticity of demand measure? Why should a firm or business know the difference between each of the three concepts? (2 marks per definition and 4 marks for why firms need to know their importance) Question 7 (a) Illustrate and explain using diagrams how a single seller within the market causes an inefficient allocation of resources and why that is bad; (2.5 marks for the diagram plus 2.5 marks for the explanation) (a) What market structure is used to benchmark allocative efficiency and why do we use it? Illustrate and explain using a diagram (2.5 marks for the diagram plus 2.5 marks for the explanation) 4 Question 8: Illustrate and explain using diagrams, two (2) market mechanisms that can be used for controlling pollution as a negative externality. [2.5 marks for each diagram (total of 5 marks) plus 2.5 marks for each explanation (total of 5 marks)] Macro Eco: same 5 out of 8 questions. Question 1: Consider a macroeconomy was initially at equilibrium. Using an aggregate demand and aggregate supply diagram model of the economy, graphically illustrate and discuss the short-run and long-run effects of the following events upon the economy: (a) The imposition of a carbon tax upon local big polluting companies. (b) An appreciation in the foreign exchange rate value of the economy’s currency. (c) The European economies all fall into recession (d) The country’s main exports fall in price while the goods the country imports from abroad rise in price (2 marks) Question 2: 2a. State the difference (IN YOUR OWN WORDS) between: -absolute advantage and comparative advantage. -between the terms of trade and the exchange rate - between a demand side shock and a supply side shock -between a trade surplus and a budget surplus (2.5 marks each) OR 2b. State the difference between: (2.5 mark per question) -uncertainty and risk. -between the interest rate and the exchange rate - between a supply side shock and a demand side shock -between a trade deficit and net foreign debt (2 marks) Question 3 Use the Australian Bureau of Statistics website and perhaps the Reserve Bank of Australia website to answer the following questions: What are the current levels of the following economic indicators in the Australian economy? (Remember these should be expressed in annual terms) Inflation Unemployment Economic growth rate The cash rate The Australian dollar exchange rate (2 marks each) Question 4 Use the aggregate demand- aggregate supply diagram model to explain the consequences in terms of price level and real GDP of a decline in aggregate demand as shown by: (a) Classical economics (b) Keynesian economics Why did the classical economists believe the economy would always find equilibrium at full employment and the Keynesians did not? Question 5 Assume an economy operates on the middle part of its aggregate supply curve. State the direction of effect on aggregate demand or aggregate supply for each of the following changes in conditions. What is the effect on the price level, real GDP and employment? Use diagrams in your answer. (a) The price of crude oil rises significantly (b) Spending on welfare and aged pensions doubles (c) The value of the currency falls on the foreign exchange market. i.e the currency depreciates (d) The Government halves the goods and services tax (GST) on all consumer goods (e) The Government announces rises in company tax. (2 marks per part) Question 6 If you wanted to increase aggregate demand how would you do it for the following: Consumption demand Investment demand Net exports Which of the three components also has an impact upon the Aggregate supply side of the economy? Question 7 Consider a macroeconomy was initially at equilibrium level of real GDP. Using an aggregate demand and aggregate supply diagram or model of the economy, graphically illustrate and discuss the short-run consequences of the following events upon an economy: (a) The Central Bank within the economy lifts interest rates. (b) There is an increase in private domestic investment spending. (c) An increase in the good and services tax (GST) (d) An appreciation or rise in the foreign exchange rate value of the economy’s currency. (e) A fall in real estate prices in the capital cities of the country (hint: think of the effect upon people’s wealth level) (2 marks each) Question 8 Why are quarterly movements in a country‘s GDP measure so important? What is it called when a country has two successive negative quarters of economic growth? When the economy is heading into a recession what economic policy instruments can the government and the central bank use to prevent this from occurring? Will these instruments work to prevent the onset of recession ...
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Kevins_Jr
School: University of Maryland

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Running head: MICRO AND MACRO ECONOMICS

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Running head: MICRO AND MACRO ECONOMICS

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MICROECONOMICS
Question 1
The rental accommodation market with market equilibrium
In the market equilibrium, the demand quantity is equal to the supply. It is the
intersection point where the quantity in demand is equal to the supply. In the market equilibrium
what is being produced is enough for the consumers and there is no surplus which is being left.

Diagram 1: Housing Rent Market Equilibrium (Weiss, 2011).

According to the graph above the price at P1 is at equilibrium with the quantity at Q1.
When goods are produced above or below P1, the equilibrium will be affected.

Running head: MICRO AND MACRO ECONOMICS
The imposing of rent control in the capital cities of Australia preventing rents from rising

Diagram 2: Impact of Rental Control (Karson & Ravikumar, 2018).
The demand for houses will increase from Q1 to Q2 if the government imposes a rent
ceiling that is lowered compared to the rent of the landlords. This will also affect the supply
since some pf the landlords will leave the market because they are not sustained with the low
rents. This will make the supply move from S1 to S2 shifting the equilibrium from Q3 to Q4.
This will then hold the rental prices at constant.
What would landlords do as a response?
The landlords will be dissatisfied due to the falling of the returns and they are likely to
get off their properties out of the market.

3

Running head: MICRO AND MACRO ECONOMICS

4

Is rent control a valid solution?
It is not a valid control since it is benefiting only one party. The control should ensure
that all the parties involved are benefiting. For our case, the tenants will be enjoying the low
prices but for the landlords, they will not be getting the expected returns and this will pull them
out of the market. This will limit landlords in constructing more houses.
Question 4
Using diagrams in your answer what are the possible circumstances under which the
burden of an excise tax would be borne
i) Entirely by consumers
ii) Entirely by producers
Entirely consumers
When the demand is inelastic and supply is elastic in the economy the consumers carry
the tax burden. This affects the pricing of the goods as consumers will be expected to pay higher
prices for the products. The consumers will, therefore, be forced to lower their consumption rate
or shifting their consumption to alternative products. The government imposes the tax burden to
consumers when it is controlling the goods that affect the health of the consumers. For example,
the consumption of tobacco and alcohol may result in health problems such as cancer to
consumers. The prices would be high to discourage the consumers from consuming them since
they cause the government more funds in construction for rehabilitation and health centers such
as cancer centers. The government may also impose the burden of tax on consumers to enable it
to generate more revenue. The revenue will enable the government to complete the projects that

Running head: MICRO AND MACRO ECONOMICS

5

will help in the growth of the economy. The fuel is an example of the goods that the government
raises prices to enable consumers to pay higher to support government projects.
The diagram below illustrates the tax burden is being carried by the consumer.

According to the graph, the burden of tax is on consumers where they are expected to
purchase the goods at high prices at P1 and this reduces the quantity that is being purchased at
Q1. Consumers are very sensitive to the prices and they will purchase more of the products at
low prices. The quantity decreases because the consumers may opt to use other alternative goods
and also lower the rate of consumption (Dutkowsky & Sullivan, 2014).
Entirely by producers.
The burden of tax is imposed on the producers at low prices. This benefits the consumers
because they pay less for the goods. This encourages consumers to spend more increasing the
quantities that are spent by consumers. The government may impose the burden of tax on
producers to increase the revenue that will support the government's functions and projects. The
government also imposes the burden of tax to the firms that import locally available products.

Running head: MICRO AND MACRO ECONOMICS

6

This helps in promoting and protecting the local industries. Environmental conservation is very
important and the government protects the citizens from the environmental pollution from the
industries by imposing taxes to the producers to raise funds to supply clean water to the citizens.

The graph shows that lowering of the prices to P increases the quantity that is being
purchased at Q. the consumers benefit from the low prices increasing their purchases
(Dutkowsky & Sullivan, 2014).
Question 5
Differences between the diminishing marginal returns and diseconomies of scale
The diminishing marginal returns are the decreasing of the marginal output of a
production process when one factor of production is increased as the other factors of production
are being kept constant. An example which illustrates the dimi...

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