FUNDATION PRINCIPLES OF ECONOMY

Question 1
Considering the situation of electricity market in South Australia, assume that the government has decided to intervene and introduce a price ceiling on the electricity price. Illustrate the likely impact of this government intervention on the market. Conclude your analysis with a comment on the benefits and drawbacks of the government's maximum pricing policy.

Question 2
The gross price elasticity between good X and Y is-1.67. What type of relationship does this represent? Give examples of these types of goods. Ensure that you use the cross-price elasticity formula to justify your answer

Question 3
You a manager for a large corporate. Recently you have received a report indicating that the price elasticity of demand of one of your goods is 1.6. What should you do to maximise total revenue? Use diagrams to support your answer where necessary

Question 4
Compare income elasticity of demand and the cross price elasticity of demand.

Question 5
Using appropriate diagrams, discuss the relationship between MC, ATC, AFC, AND AVC

Question 6
Suppose there is a perfectly competitive industry where all the firms are identical with identical cost curves. Furthermore, suppose that a representative firm's total cost is given by the equation TC = 100 + q² + q where q is the quantity of output produced by the firm. You also know that the market demand for this product is given by the equation P = 1000 - 2Q where Q is the market quantity. In addition you are told that the market supply curve is given by the equation P = 100 + Q.

(a) What is the equilibrium quantity and price in this market given this information?