ECO10250 Economics for Decision Making Online Tutoring

This first assignment consists of five questions based on topics covered in the early part of this unit. The purpose of this assignment is to give you the opportunity to demonstrate the skills you have acquired in this unit.

The assignment due date provided here applies to the Australian study period. This may be varied for students studying elsewhere, so please confirm dates with your local tutor.

Students must submit Online Tutoring 1 online via Turnitin, the online submission facility on the MySCU website for this unit. You must attach an electronic cover sheet (available in MySCU in the Assessment Tasks and Submission icon) as the first page of your assignment otherwise your assignment will NOT be marked. You should keep a copy of all submitted materials. It is important that you that you keep your receipt from Turnitin (it is sent to you once you submit your assignment) and make sure your score is acceptable. A value of over 50 per cent (not including repeating the questions) should raise some concerns for you. You will be able to check your Turnitin score more than once but be aware the first time you submit your assignment you will receive a score very quickly however your subsequent results may take up to 24 hours to get to you.

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References and Referencing

Most of assignment no. 1 can be answered if you have studied the textbook. However you may seek other sources here and there (question 5a especially) so it is important to be aware that material posted on the web may not always be reliable. You are advised to carefully consider the authenticity of all sources of the information before using it in assignments.

It is also important to use Harvard-style referencing for external material used in your work. For assignment no. 1 you do not need to reference the Layton et al textbook.

School of Business and Tourism Extension Policy

It is VERY important that YOU make yourself aware of the School’s Extension Policy and Special Consideration Policy. This is covered under the Assessment Policy and Procedures Tab on the MySCU learning site.

Students wanting an extension MUST make a request at least 24 hours before the assessment item is due and the request must be received in writing via email to [email protected]

Extensions requested within 24 hours of the submission date or following the submission deadline WILL NOT be granted (unless supported by a doctor’s certificate or where there are exceptional circumstances – this will be at unit assessor’s discretion and will be considered on a case by case basis). Extensions will be given for a maximum of 48 hours (longer extensions supported by a doctor’s certificate or exceptional circumstances will be considered on a case by case basis).

A penalty of 5% of the total available marks will accrue for each 24 hour period that an assessment item is submitted late. Therefore an assessment item worth 25 marks will have 1.25 marks deducted for every 24 hour period.

Students who fail to submit their assignments according to the correct guidelines provided above will be deemed to have not submitted their assessment item and a penalty will be applied until the correct submission guidelines are followed.

Extensions can be sought by emailing [email protected] When emailing it is essential to put ECO10250 in the subject area of your email otherwise it may be deleted as SPAM.

Re-submissions and re-sits

In this unit there are no provisions for re-submitting assignments. If you have failed the unit after completing all three assessment items, there is an opportunity to re-sit the exam. The following conditions apply in this case:

The ability to re-sit the exam will only be open to you if you have submitted ALL assessment items and sat he original exam.
For any student who takes up this option a pass will be the highest result achievable.

Online Tutoring 1- ECO10250 Questions

Due: 11pm Monday, 17 August 2020 (Week 7)

Weighting: 25%

Note that when you are answering questions that require mathematical calculations, you should provide details as to how the answers were derived. In completing your answers, you should use diagrams wherever possible and relevant. Always provide a brief explanation of each diagram, including how it relates to your overall answer.

Question 1

The following is a set of hypothetical production possibilities for a nation.

Combination	Computers	Cars
A	0	450
B	100	420
C	250	330
D	380	270
E	510	150
F	550	0

Plot the production possibility for the nation.
What is the opportunity cost of the first 100 computers produced?

What would be happening if this nation is only producing combinations of 200 computers and 300 cars?

Show what would happen to the production possibility frontier if this nation introduced an improved new technology that allowed it to double its production of cars. The productivity of computers is unchanged.
Explain how the production possibilities frontier reflects the law of increasing opportunity costs.

Parts i to v are worth 1 mark each.

Suppose that a Council is considering lowering the fees charged for parking in the CBD but not near the Council’s beaches for two reasons: a) to substantially raise its revenue from parking fees in the popular CBD area; and b) to discourage people from using the limited amount of parking near the Council beaches. Are these two objectives mutually consistent? Explain why or why not. Describe any assumptions you may need to make in order to answer this question.

(5 marks)

Question 2

In February 2020 it was reported that Australia’s solar power capacity could almost double in a year.
i) Use demand and supply curves of solar power to show this doubling of capacity. (2 marks)
ii) Use demand and supply curves of solar power to show what is likely to happen to demand for solar power over time in response to the capacity increases. (2 marks)

iii) Use demand and supply curves of solar power and coal-fired power separately to show what is likely to happen to demand and supply of solar power if the government introduces a tax on coal-fired power. (4 marks)

In an attempt to support the solar-powered motor vehicle industry the government decides to set a minimum price for solar-powered vehicles. Do you think this is a good idea? Explain your decision with the aid of a diagram. (2 marks)

Solution:

The PPC is a model that shows the tradeoffs associated with allocating the resources between the productions of different goods (Tucker, 2008). It is the graphical representation of all the bundles of cars and computers available to be produced within the given resources of a nation. At bundle A, the nation is able to produce 450 cars and 0 computers. While on bundle B, it can produce 100 computers and 420 cars within the given resources. Any bundle outside the PPC is unachievable and any bundle within the curve is undesirable as it doesn’t utilize all resources to maximize the production levels (Tucker, 2008).

For the production of first 100 computers, the nation has to give up production of 30 cars. Hence, at bundle B, it will trade off 30 cars production for achieving the production of 100 computers. The opportunity cost is thus 30 cars.
If the nation decides to produce 200 computers and 300 cars, the bundle will fall inside the PPC. For any bundle inside the curve, the nation would be producing less of both cars and computers while being below full potential capacity. This will mean that nation isn’t utilizing its resources efficiently (Tucker, 2008).
The nation can achieve the bundle falling outside the curve by improving the technology. With improvement in technology, the PPC will shift outwards if the technology is implemented for both cars and computers (Tucker, 2008). However, given the improvement in cars production only, the PPC will shift from Y-axis only. The effect can be seen below where the PPC has shifted from y-axis i.e. cars production only given the advancement in technology.

The law of increasing opportunity states that as the production of one good is increased, the opportunity cost of producing additional good also increases (Tucker, 2008). This law is easily depicted by PPC as the curve illustrates that in order to increase the production of one good (car), it would require reducing the production of the other good (computers). In order to produce more cars, the nation will have to give up more n more computers at each level. As can be seen from the figure above that at bundle A the opportunity cost was 30 cars for producing 100 computers while for producing extra 150 computers, the nation had to give up production of 90 cars and so on. The law of increasing opportunity is fundamental to the production of any bundle of goods. With increasing quantity production, the opportunity cost rises hence it is depicted by convex shape of PPC (Tucker, 2008).

PART B

The two objectives are not mutually consistent. If the parking fee is lowered by the council in specific CBD area, it will only lead to chaos and congestion mainly because of inelastic demand for parking in the CBD area. The consumers will willingly pay higher prices for good parking and the revenue from parking in CBD will not rise, instead it will fall. In the CBD area, the fee should remain high and strong laws must be enforced.

On other hand, the demand for the parking in Beaches at Council is elastic because of number of beaches. If high prices will be kept, people will look for other areas for parking and congestion will be caused. Hence, the fee should be kept low there. Even distribution will be the resultant as people will park away from CBV due to limited space. If CBD fee is kept low, revenues will fall and if people are discouraged to park in CBD area, chaos will incur. The solution seems to expand parking and make areas for parking so that demand becomes inelastic.

QUESTION 2

PART A

If the solar power capacity is expected to get doubled for Australia, its supply will shift to the right. It means that the supply has increased(Ippolito, 2005). See figure below for the effect:

In this case, the price will decrease and quantity supplied for solar power will increase.

Over time, with excess of solar supply in the market, the prices of the energy will fall. Hence, people will start buying more that will push the upward pressure on prices (Ippolito, 2005). As a result, the prices will start increasing and reach the old equilibrium point. See figure below to understand this phenomenon.
When the demand curve for solar energy rises, the government will start imposing taxes on coal. This will rise the price paid by the consumers (Ippolito, 2005). Also, since both are substitutes, the price rise in one product (coal) will shift the demand curve of the other good (solar) to the right. See figure below:

The quantity and price both will rise in this case.

Due to impose of taxes in coal market, the prices paid by consumers and received by producers will increase so consumers will shift to solar power as a substitute good (Ippolito, 2005).

PART B

If minimum prices for the goods are set by government, it will create the surplus in the market. Prices set by government are usually higher than the equilibrium prices and supplier will increase the supply and consumer will decrease the demand (Morton & Goodman, 2005). In this case, the consumer welfare and producer welfare will decrease with total decline in welfare. Government shouldn’t intervene in market and leave the mechanism on the market itself.

In the above diagram, we can see that at the minimum price, the supply is more than demand and there is excess supply (Q3 – Q1) due to higher price. In order to keep the equilibrium price and remove surplus, government shouldn’t intervene and at P1 the demand and supply will be equal to each other without any excess or shortages in the market (Morton & Goodman, 2005).

QUESTION 3

PART A

Price Elasticity of Demand:

It is given by:

Quantity Change =

Price Change =

P	Q	Q2-Q1	(Q2+Q1)/2	% change in Q	P2-P1	(P2+P1)/2	% change in P	Midpoint Elasticity
0	10
1	9	-1	9.5	-11%	1	0.5	200%	-0.05
2	8	-1	8.5	-12%	1	1.5	67%	-0.18
3	7	-1	7.5	-13%	1	2.5	40%	-0.33
4	6	-1	6.5	-15%	1	3.5	29%	-0.54
5	5	-1	5.5	-18%	1	4.5	22%	-0.82
6	4	-1	4.5	-22%	1	5.5	18%	-1.22
7	3	-1	3.5	-29%	1	6.5	15%	-1.86
8	2	-1	2.5	-40%	1	7.5	13%	-3.00
9	1	-1	1.5	-67%	1	8.5	12%	-5.67
10	0	-1	0.5	-200%	1	9.5	11%	-19.00

The PED is the rate at which the demand goes up or down in response to changes in prices. The demand for the product can be both elastic and inelastic(Mankiw, 2008). Demand is elastic when the change in demand is more than change in price. It is inelastic when the change in demand is smaller than the change in price. PED are always negative hence we take the absolute value. When the PED is smaller than 1, it means demand is inelastic and when it is more than 1, it means it is elastic. It changes along the slope (Mankiw, 2008).
Change in Revenue:

P	Q	Total Revenue
0	10	0
1	9	9
2	8	16
3	7	21
4	6	24
5	5	25
6	4	24
7	3	21
8	2	16
9	1	9
10	0	0

As the PED is elastic, total revenue decrease. We can see that after 5^th unit, the PED is elastic and revenue started decreasing (Mankiw, 2008). However, with inelastic range (1-5) the total revenue kept at rising.

Yes, it is the general economic notion that with PED being inelastic, the total revenues rise as the price rises. It starts to fall during the range of elastic PED. Same is depicted in the given case (Mankiw, 2008).

PART B

The price elasticity of supply is calculated by finding the proportionate change in quantity supplied due to proportionate change in price level (Mankiw, 2008). It is calculated as: