INSTRUCTIONS

For each of the 3 questions below, write a brief explanation in answer to each part of each question. Marks awarded will depend on the quality of the reasoning exhibited, the ability to express the argument in a concise manner (including the use of diagrams) and the organisation of your answer.

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 a page-and-a-half of should be devoted to any one question.

QUESTION 1-

a) What economic principle is the article primarily concerned with?

b) The article refers to competing uses for land. What are the 3 different uses that the article states to which land can be put? What are the

2 distinct economic categories of goods that these uses fall into?

c) Using your answer to Question 1c), explain any economic problems that would arise if golf courses were converted into public space?

d) If left to market forces, what criteria would be used to decide between competing land uses?

QUESTION 2-

a) Distinguish between an increase in demand and an increase in quantity demanded. Show each graphically.

b) Illustrate the impacts of a price ceiling and a price floor in a market. Give an example of each type of price restriction. What problems arise from such intervention in the market?

c) The graph below displays the price of iron ore in $US per tonne over the past 5 years. Provide a brief overview of the reasons for the fall in the international price of iron ore since 2013 (as indicated by the black vertical line). Concentrate on factors that have affected both the

QUESTION 3-

a) Explain the 3 different types of elasticity of demand.

b) Use supply and demand analysis to illustrate the effects of a specific or per unit tax on consumers and producers of petrol. In your answer, address the following points:

i. Is demand for petrol elastic or inelastic with respect to its price? Explain your answer.

ii. Does the price to the consumer rise by the full amount of the tax? iii. What determines the incidence or the burden of the tax?

c) Initially the demand curve for a commodity is given by the equation P=100-4Q. Assume that there is an increase in demand so that the new demand equation becomes P=100-2Q. Answer the following questions:

i. Does the second demand curve illustrate a different elasticity of demand? Explain your answer.

ii. Suppose that there is a further increase in demand so that the new demand equation becomes P=150-4Q. After this particular demand change will elasticity of demand be different at each price level?