This question has Macro and Micro economics questions
Swinburne College Economic Principles (ECO10001) Final Assignment P a g e 1 | 7 Economic Principles (ECO10001) Final Assignment Instructions to students Due date: Please submit your completed work by Sunday, 11:59pm at the end of Week 12. Form of submission: Please submit on Canvas via “Assignments”. Document type for submission: Microsoft Word. Assignment format: The Final Assignment involves answering 4 case studies, beginning from the next page. The final assignment is to be completed in a group of 4. The final assignment is worth 30 marks. Please ensure that each member provides their details (i.e., name & student ID) and sign on the assignment cover sheet. Please take note of the following: − There is NO need to provide references in your answers. − Feel free to consult various sources (e.g., the textbook, newspapers, the internet, etc) to help with composing your answers. − You must NOT copy and paste verbatim from those sources. You must paraphrase, using your own language. − Straight copying and pasting will be caught for plagiarism. Students who are detected of plagiarism will be subject to serious academic consequences. − You are welcome to discuss the questions with each other. Again, you must make sure to compose answers in your own language. − Students submitting the same work will also be held liable for plagiarism. − For questions that involve drawing graphs, please feel free to draw your graphs with pen and paper, take a photo, then insert the photo into your answer document. − Please do not copy the questions in your answers as it will trigger plagiarism detection. Swinburne College Economic Principles (ECO10001) Final Assignment P a g e 2 | 7 Case Study No. 1: Microeconomics (10 marks) Ben F is a young and prominent businessman, hailing from Prickly Bottom, Tasmania. (Yes, it’s a real place, folks. Welcome to Tassie, the gateway of stupidities, I mean, opportunities!) He owns Ben Barn Ltd, a farming business, specialising in growing lettuce in his home state. While there are more than 2,000 lettuce farms all across Australia, the majority of supply comes from Queensland (QLD) and New South Wales (NSW). In the first half of 2022, lettuce farmers in QLD and NSW lost all of their crops due to one of the worst recorded flood disasters in history. The disaster spanned over two months, from February to April 2022, with heavy rainfalls pouring again in late June and early July. Based in Tasmania, Ben Barn Ltd was not affected by this extreme weather and was able to keep its lettuce crop intact. Required: 1. What market structure would best describe the lettuce farming industry in Australia? Clearly explain why. Hint: There are FOUR possible market structures: perfect competition, monopolistic competition, oligopoly and monopoly. (2 marks) 2. Draw an appropriate demand – supply graph to illustrate the impact of the shock above (i.e., disastrous floods destroying crops in QLD and NSW) on the market for lettuce in Australia. Point out the relevant determinant behind the shift in the demand and/or supply curves. (2 marks) 3. Clearly explain how the flood events in QLD and NSW would impact the business of Ben Barn Ltd, in terms of its demand, price, quantity and economic profit. Note: For each factor above, you must spell out how it is changing (i.e., increase, decrease or unchanged) AND you have to explain the reason(s) behind the change. (2 marks) Swinburne College Economic Principles (ECO10001) Final Assignment P a g e 3 | 7 4. Draw an appropriate firm diagram to illustrate the impact of the shock above (i.e., disastrous floods destroying crops in QLD and NSW) on the business of Ben Barn Ltd. (2 marks) 5. Speaking to ABC Australia, Ben F, the owner of Ben Barn Ltd, said the following: “In a normal season, I would average $20 per one box of lettuce. This year, I was able to fetch $40 for the same box. However, things are not all rosy. My business had to battle surging costs caused by the war in Ukraine and COVID, which ate away much of the extra revenue”. Do some research and explain how the war in Ukraine and COVID caused soaring costs for an average lettuce farm in Australia (2 + 2 + 2 + 2 + 2 = 10 marks) Swinburne College Economic Principles (ECO10001) Final Assignment P a g e 4 | 7 Case Study No. 2: Microeconomics (5 marks) Woolworths and IGA are the only two supermarket chains in Australia to have won the exclusive right to sell the latest Tim Tam. The new product, called “Tim Tam: Vegemite Blast”, is expected to be a smash hit among biscuit lovers. The market for “Tim Tam: Vegemite Blast” can, therefore, be framed as one of duopoly (i.e., two sellers dominating the entire market). Woolworths and IGA are contemplating whether to charge a low price ($4 per pack) or high price ($7 per pack). All possible outcomes of this game are shown below. − If Woolworths charges a high price and IGA charges a high price, Woolworths will earn $69,000 in sales revenue per day, from selling this new Tim Tam alone. IGA will earn $42,000. − If Woolworths charges a high price and IGA charges a low price, Woolworths will earn $36,000 and IGA will earn $37,000. − If Woolworths charges a low price and IGA charges a low price, Woolworths will earn $78,000. IGA will earn $31,000. − If Woolworths charges a low price and IGA charges a high price. Woolworths will earn $86,000. IGA will earn $12,000. Required: 1. Construct a payoff matrix for this game based on the information provided above. (1 mark) 2. Does IGA have a dominant strategy in this game? If yes, what is the dominant strategy for IGA? Clearly explain why it is the dominant strategy. (1 mark) 3. What is the Nash equilibrium for this game? Clearly explain. (1 mark) 4. If Woolworths and IGA are to adjust their prices every two weeks (i.e., the two firms keep playing this game repeatedly), what would likely be the final outcome? Clearly explain. (1 mark) Swinburne College Economic Principles (ECO10001) Final Assignment P a g e 5 | 7 5. Based on the sales figures for Woolworths and IGA as shown above, what can you say about the price elasticity of demand for the “Tim Tam: Vegemite Blast” biscuit? What is the main factor that drives consumers’ purchase of the product? (1 mark) (1 + 1 + 1 + 1 + 1 = 5 marks) Case Study No. 3: Macroeconomics (10 marks) On 27 July 2022, the ABS (Australian Bureau of Statistics) released data on the CPI (Consumer Price Index) for the 2nd quarter of 2022. Headline inflation rate was shown to hit 6.1% while core inflation rate topped 4.9%. Both are annual figures, obtained by comparing the average price level in June 2022 against the year before (June 2021). Inflation has never been this high since June 2001 when the GST (Goods & Services Tax) was first introduced in Australia. Required: 1. What are the reasons behind the inflation rate running rampant at the present? While there are a raft of factors at work, you only need to identify TWO (2). Explain clearly in words how the TWO (2) factors of your choice cause the current inflation rate to hit historic high. (2 marks) 2. Amid the present economic environment, what type of monetary policy do you think is needed? Clearly explain why. (2 marks) 3. Describe in detail the steps the RBA (Reserve Bank of Australia) must undertake to implement the monetary policy suggested in part (2) above. (2 marks) 4. Clearly explain how the monetary policy suggested in part (2) above would affect the Australian economy. Hint: Explain the impacts on Aggregate Demand (AD), Short-run Aggregate Supply (SRAS), and Long-run Aggregate Supply (LRAS). (2 marks) Swinburne College Economic Principles (ECO10001) Final Assignment P a g e 6 | 7 5. Many economic commentators warn that aggressive action by the RBA would inflict unnecessary damages on the economy. They contend that hiking interest rates may not help drive down inflation. At the same time, it may push a large number of homeowners to the brink. Do some research to explain why, amid current economic conditions, higher interest rates “may not help tame inflation”, and would potentially “push homeowners to the brink” (2 marks) (2 + 2 + 2 + 2 + 2 = 10 marks) Case Study No. 4: Macroeconomics (5 marks) In this case study, let’s wind the clock back to the year 2019. In early September 2019, the Australian economy woke up to underwhelming news regarding growth data for the 2nd quarter of 2019 (from 1st April to 30th June 2019). According to the data published by the ABS (Australian Bureau of Statistics), the economy grew at a quarterly rate of 0.5 percent. In other words, Real GDP in June 2019 was 0.5 percent higher than that in March 2019. This was the weakest growth rate on record ever since the first quarter of 2001 (from 1st January to 31st March 2001). Even more disappointingly, the data revealed that the quarter ending June 2019 witnessed a lower level of Real GDP per capita compared to the year before (the quarter ending June 2018). Required: 1. As discussed above