1. The demand for new houses in Melbourne and Sydney have held up relatively well, compared to the other states in Australia. However, in Melbourne, it is expected that by the end of this year the increase of new apartments into the market will far outstripped any increase in the demand for new apartments. Explain, with demand and supply diagrams, the impact on price and quantity for new apartments.

2. Assume the price of a good decrease from $10 to $8, leading to a rise in quantity demanded from 475 to 500 units. Using the midpoint elasticity formula, calculate the price elasticity of demand for the good at this price range. Explain why it is important for a business to estimate the price elasticity of demand for its product.

3. a) It is assumed that all firms are profit maximisers. Explain, with diagrams, the 2 approaches used to explain profit maximising behaviour of a perfectly competitive firm.

b) If a profit maximising perfectly competitive firm is making an economic loss, explain, with diagrams, the options available to the firm in the short run.