Principles of Economics: Assessment - Short Answer Questions

Question 1: Imperfect Competition

(a) Explain why the soft-drink market in Australia may be regarded as an example of an oligopoly. How does this industry differ from a perfectly competitive industry? Compare graphically (use 2 graphs) the prices and outputs that would result under tacit collusion and non-collusive oligopoly.

(b) Describe at least two criticisms leveled at the kinked demand analysis.

(c) Is price discrimination a bad thing? Explain your answer.

Question 2: Market Failure and Government Policy

(a) If perfect markets allocate resources efficiently, why do we need government? In answering this question, make specific references to at least three (3) sources of market failure and explain the role of government in correcting each. Use diagrams to show how efficiency can be restored through government intervention.

(b) One form of negative externality is global warming and climate change caused by greenhouse gas emissions. Discuss at least three plausible policy alternatives to address this market failure.

Question 3: Introduction to Macroeconomics

(a) What are the latest figures for the unemployment rate, the growth of GDP and the inflation rate? [To find out, visit the Australian Bureau of Statistics (ABS) website at: www.abs.gov.au/].

(b) Based on your analysis of the above data, where would you place Australia in the business cycle? Explain your reasoning.

(c) The table below gives the national accounts data for a hypothetical economy in 2015.

Using the data in above Table, calculate GDP and the country's Gross National Expenditure (GNE) using the expenditure approach.

Question 4: The Determination of GDP

The table below shows part of a country's aggregate expenditure schedule (in $ billions)

(a) Refer to the above and calculate the expenditure multiplier for the economy. Assume that full employment is achieved at a level of GDP of $350 billion.

(b) Is there an inflationary gap or deflationary gap? Illustrate and explain.

(c) What government policies can help to close the gap mentioned in part (b)?

(d) What effect does the minimum wage legislation have on poverty?

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