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Economic Foundations and Market Forces

Economic Foundations and Market Forces

Economic Foundations and Market Forces

Written Assessment ECO10004 Economic Principles

Part A – Introduction

Due Date – See Canvas under the assessment tab

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Task 1: Economic Foundations and Market Forces

Read the following and answer questions 1 and 2.

Consider two individuals, Jenny and Mary who can produce both necklaces and bracelets. Jenny

can produce 20 necklaces or 30 bracelets in an hour and Mary can produce 15 necklaces or 15

bracelets in an hour.

1. What is absolute advantage? From the information provided who has an absolute

advantage in the production of necklaces? Who has an absolute advantage in the

production of bracelets? Explain why. (1 mark) –Word count 60

2. What is opportunity cost? From the information provided, what is Jenny ‘s opportunity

cost of producing one necklace? Explain why. What is Mary’s opportunity cost of

producing one necklace? Explain why. (2 marks) – Word count 80 + calculations

Answer questions 3 and 4 from Table 2

Table 2: Quantity demanded and supplied for the “Boost Juice”

Price ($) Quantity demanded Quantity supplied

4 1500 700

6 1200 800

8 900 900

10 600 1000

12 300 1100

14 0 1200

3. Draw the demand and supply curves for “Boost Juice”. What are the equilibrium price and

quantity of drinks? Explain why this is the equilibrium point. (1 mark) Word count 50

4. Explain, using the graph in question 3 above, what would happen if the price was initially

$4? Identify any surplus or shortage on the graph above. (2 marks) – Word count 150


5. Consider the market for ‘solar panels on the roofs of domestic houses’. Assume the market is

initially in equilibrium. Using the demand and supply framework explain what would happen

in the market for solar panels if the price of electricity (supplied via the electricity network)

was to increase. Include a graph in your answer. (2 marks) Word count 150.

Read the following short excerpt and answer Question 6.

Escape to the country drives price boom

Holiday spots and towns near regional centres are experiencing boom-level house price

growth as first-home buyers and tree changers flock to the country. …..

Young families were increasingly looking to the regions for a more relaxed lifestyle, WBP

Group chief executive Greville Pabst said. “Being able to have a bit of a retreat – it’s

quite attractive away from the busy pace of the city” Mr Pabst said.

He said affordability was also a huge driver of regional house price growth, and first-

home buyer stamp duty savings and government grants for new regional homes push

pushed prices up.

Author Jemimah Clegg

The AGE. May 5th, 2018. Page 16.

6. Using demand and supply analysis, and with the aid of a graph, explain how the fact that

young families are looking for a more relaxed lifestyle is affecting house prices and quantity in

the regional town. Make sure you identify any important determinants of demand and/or

supply and identify any shortage or surplus and how this affects quantity.

Explain using a graph and words how affordability issues in of houses in Melbourne is

affecting house prices and quantity in the regional town. Make sure you identify any

important determinants of demand and/or supply and make identify any shortage or surplus

and how this affects quantity.

Contrast the two forces above and explain why it may be important to understand the

difference between them if you are a property developer. (4 marks) – Word count 350


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