Below are three questions. WRITE A BRIEF NOTE OF EXPLANATION IN ANSWER TO EACH PART OF EACH QUESTION. The marks awarded will depend on the quality of the reasoning exhibited and the ability to express the argument in a concise manner. Where appropriate draw diagrams to illustrate your answer (these can be hand drawn).
This assignment should be answered in no more than 1,500 words. On average, no more than about two to two and a half pages of hand written response or the equivalent in typing should be devoted to any one question. The assignment is marked out of a total of 80.
1. (a) Evaluate the following statement: "If John types fifty words per minute and Carolene types one hundred and twenty, then it certainly makes more sense for Carolene to be employed as a secretary than for John to be."
(b) In a business meeting concerning whether to store goods in a company-owned warehouse or to rent a warehouse, a colleague says, "We should use our own warehouse and save the cost of renting one." Consider the validity of this claim
(c) In the early part of last century production of many goods in Australia was carried out under relatively labour-intensive conditions whereas today most production is relatively capital intensive. Use the concept of opportunity cost to assist in explaining why there has been a change in methods of production
2. (a) A newspaper article points out that the price of Armani evening gowns has increased by 30% over the last two years yet sales of these gowns are higher. The article claims that these figures show that the law of demand does not apply to Armani gowns. What error has the article made in interpreting the law of demand?
(b) In a discussion of housing policy a representative from a welfare group argues that reasonable rented housing could be brought within the economic means of all if the government were to prevent landlords from charging more than $300 per week for a quality three bedroom house. Would you accept this argument? Briefly explain why or why not.
(c) For each of the following events, assume that either the supply curve or the demand curve (or both) has shifted. Explain which curve has shifted, the direction of the shift and what might have caused the shift.
(a) From 1970 to 2000 the wages paid to domestic servants increased while the number of servants employed decreased.
(b) During the same period the price of radio sets declined, while the number of radio sets purchased increased.
(c) Housing prices are rising but more houses are being sold.
(d) As a result of wheat farmers deciding to withhold some of their product from the market, prices have risen.
(e) Qantas reduces its average plane fares by 30 percent in order to attract more customers.
3. (a) Given two parallel, downward-sloping, linear demand curves, is the demand elasticity the same at any given price? Given two downward-sloping, linear demand curves,with one showing consumption to be 50 per cent greater than the other demand curve at each price, is the demand elasticity the same at any given price? Explain your answers.
(b) Assume that the demand for illegal drugs is inelastic and that users get the funds to pay for these drugs by stealing. Suppose that the government increases penalties on suppliers of illegal drugs thereby reducing supply. What will happen to the amount of crime committed by users of illegal drugs?
(c) 1) Market analysts often use cross-price elasticities to determine a measure of the "competitiveness" of a particular good in a market. How might cross-price elasticities be used in this manner? What would you expect the cross-price elasticity coefficient to be if the market for a good was highly competitive? Why?
2) Explain how information on income elasticity of demand is likely to be useful to a firm making long term plans on productive capacity.