Task

Answer all four (4) questions. Maximum of 400 words for each question. Use diagrams were appropriate to enhance and explain your response.

Question 1

a) A farmer is deciding whether or not to add fertiliser to his or her crops. If the farmer adds 1 kilogram of fertiliser per hectare, the value of the resulting crops rises from $80 to $100 per hectare. According to marginal analysis when the farmer should add fertilizer?

b) Bill has $10 that he can spend on a Superman action figure, a Batman graphic novel or an X-Men Tshirt. Bill decides to buy the action figure, even though the graphic novel was a close second choice. What is the opportunity cost of buying the action figure?

c) Wheat farmers across Australia have to sell their produce at one fixed price for all wheat produced.

Thus, price does not vary in relation to the individual farmer's quantity of wheat sold. Draw this type of wheat demand curve and decide what value the slope has.

Question 2:

a) Explain if a firm in the perfectly competitive market would or would not innovate.

b) What are the two main differences between monopoly and competition?

c) What happen with firm's price and revenue operating in competitive market if the firm doubles the amount of output it sells?

Question 3:

The following table shows the quantity of a product demanded at two different prices:

a) Calculate the proportionate change in quantity demanded when price falls from $16 to $14.

b) Calculate the proportionate change in price when price falls from $16 to $14.

c) What is the price elasticity of demand between $16 and $14? Interpret the results.

d) What is the price elasticity of demand between $16 and $14 if you applied the 'mid point' formula? Interpret the results.

Question 4:

a) The diagram below shows the demand for and supply of petrol. The market is initially in equilibrium at point x. To which equilibrium point (a, b, c, d, e, f, g or h) will the market move from point x after each of the following changes?

i) A rise in the cost of refining petrol.

ii) A fall in bus and train fares.

iii) A fall in the price of crude oil and an increase in the price of cars.

iv) A rise in tax on petrol and a reduction in tax on cars.

b) The government has decided that the free market price of cheese is too low. Suppose the government imposes a binding price floor in the cheese market.

i). Use a supply and demand diagram to show the effect of this policy on the price of cheese and the quantity of cheese sold.

ii) Is there a shortage or a surplus of cheese sold? Explain

iii) Farmers complain that the price floor has reduced their total revenue. Is this possible? Explain.

iV) In response to these complaints, the government agrees to purchase all of the surplus cheese at the price floor. Compared to the previous arrangement who benefits from this policy? Who loses?

Presentation

The following points are a general guide for presenting assessment items.

• Responses to assessment items should be typed. Use 1.5 spacing.
• Use a wide left margin. Markers need space to be able to include their comments. Use a standard 12pt font such as Times New Roman, Calibri or Arial.
• Left- justify body text.
• Include a separate title page with your name, student number, subject code, assessmentnumber and assessment question. Include class time and tutor's name if applicable. Number your pages (except the cover page).
• Use a header or footer with your name and student number on each page.
• Always keep a copy of your assessments. Both a hard copy and an electronic copy.
• Most importantly, always use your spelling and grammar checker, but remember that this does not pick up all errors. You must still manually and carefully edit your work.
• You need to appropriately reference all the articles, reports and web-sites you employ in developing your assignments. Please use the APA style