ECO100 - Principles of Microeconomics - National Economy - Economics Assessment Answer

ECO100 - Principles of Microeconomics - National Economy - Economics Assessment Answer 

Task:

Describe the key fundamental principles of microeconomic and macroeconomic theory

Learning Outcomes

• Explain how different markets work to determine prices, demand, and supply and analyze the efficiency of markets
•  Examine and explain the relationships between the national economy, GDP and economic growth and the key macroeconomic variables such as inflation, unemployment, interest rates, and money supply, and exchange rates
• Apply economic theory to analyze and evaluate topical micro and macroeconomic issues in real world events and communicate arguments effectively in writing.

Academic Details

This subject is an introduction to economics. The first half of the subject deals with microeconomic issues focusing on the behaviour of individual economic agents (consumers, resource-owners, businesses), with the choices and decisions made by these agents and with the effects of these decisions on other agents. The second half deals with key macroeconomic issues such as GDP, economic growth, unemployment, inflation, fiscal policy with taxes and government spending, monetary policy with interest rates and money supply, the exchange rate, the current and capital accounts, other government economic policies related to these issues, and the impact of changes in such policies and economic environment on national and global economy as a whole, including financial markets, households and firms. It is expected that upon completion of this subject students will have a sufficiently good working knowledge of basic economic theory and practice to be able to read and understand economic commentaries in sources such as the Australian Financial Review, The Economist, the finance section of the daily newspapers and various business and financial journals.

Question 1

(a) China produces only clothing and rice. Draw China’s production possibility frontier showing the trade- off between the production of clothing and the production of rice. Label the horizontal axis, “Rice” anthe vertical axis “Clothing”. 
(b) Explain why the production possibility frontier (PPF) is concave. 
(c) State all the assumptions underlying the construction of a PPF. 
(d) In relation to the PPF, explain the terms ‘Production Efficiency’ and ‘Allocative Efficiency’.
(e) Suppose adoption of a new technology for growing rice lowers the cost of producing rice, allowing yields to increase by 100%. Show and explain the impact of this technological change on the initial production possibility frontier in part

Question 2

“More than one billion of cups of coffee are consumed in Australia’s cafes, restaurants, and other outlets each year, an increase of 65 percent over 10 years. People are drinking less ‘instant coffee’ as espresso becomes more popular and new specialty coffee shops have been popping up all over Australia to satisfy the demand for a daily caffeine fix. Not only are people drinking more coffee, but they are also becoming more coffee- savvy and want premium brew even if it costs more.”

Answer the following questions after reading the news clip above.
(a) Under what market structure would you classify the espresso coffee market, are firms price takers or price makers? Explain. 

(b) With the aid of an appropriate economic model, explain why there has been such an explosion in the number of coffee chains in Australia over the past 10 years. [
(c) Do you for see firms in the market making positive economic profit in the long run? Explain. 
(d) Would the impact of government subsidy to each existing firm change your answer in part (c) in the short run? Explain.

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