TECO602NA - Economic Environment Of Business Assessment

Question 1 (Total 10 marks)

For each of the following pairs of goods, which good would you expect to have more elastic demand and why?

1. Required textbooks or mystery novels. (2 marks)
2. Beethoven recordings or classical music recordings in general. (2 marks)
3. Bus trips during the next six months or bus trips during the next five years (2 marks)
4. Lemonade or water. (2 marks) e) Luis Vuitton handbag or locally produced handbag (2 marks)

Question 2 (Total 8 marks)

Suppose that business travellers and holiday-makers have the following demand for airline tickets from Sydney to Melbourne

As the price of tickets rises from $200 to $250, using the midpoint method what is the price elasticity of demand for

1. business travellers (2 marks) and
2. holiday-makers? (2 mark)
3. Why might holiday-makers have a different elasticity than business traveler? (4 marks)

Question 3: (Total 8 marks)

1. Classify the following markets as perfectly competitive, monopoly or monopolistically competitive, and explain your answers: (6 marks)
   1. Wooden HB pencils
   2. Bottled mineral water
   3. Copper
   4. Local telephone calls
   5. Peanut butter
   6. Lipstick

Question 4: (Total 8 marks)

The Best Computer Company just developed a new computer chip, on which it immediately acquires a patent. The patent gives the company a monopoly. The diagram below shows the consumer surplus, producer surplus and total surplus in the market for this new chip.

1. What happens to consumer surplus, producer surplus and total surplus, if the firm can perfectly price discriminate? (2+2+2 marks)
2. What happened to the deadweight loss? (1 mark) c) What direction of transfers occurred? (1 mark)

Question 5: (Total 8 marks)

Discuss the three ways in which the gross domestic product (GDP) can be measured? Why does each of them end up with approximately the same value? (3+2 marks)

Consider the following data assuming that these are the only products produced and consumed in the economy.

Product 2018 Quantity 1 2018 Price (S) 2019 Quantity 2019 Price (S) Beer 4 2 Chocolate 7 6 3 Using 2018 as the base year answer the following questions:

1. What was the nominal GDP in 2018 and 2019? (1 mark)
2. What was the real GDP in 2018 and 2019? (1 mark) What was the GDP deflator in 2018 and 2019? (1 mark)

Question 6: (Total 8 marks)

Nimbus Ltd makes brooms and then sells them door-to-door. Here is the relationship between the number of workers and Nimbus' output in a given day

1. Fill in the column of marginal product. What pattern do you see? (2 marks)
2. Fill in the column for average total cost. (Recall that ATC TC/Q). What pattern do you see? (2 marks)
3. Now fill in the column for murginal cost (Recall that MC ATC/AQ). What shape do you see? (1 mark)
4. Compare the column for marginal product and the column for marginal cost. Explain the relationship. (1 mark)
5. Compare the column for average total cost and the column for marginal cost. Explain the relationship. (2 marks)

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