Introductory Microeconomics

Assignments
Note: Assessment requirements.
To pass this unit, students must:

attempt both assignments and the examination

achieve at least 50% in total, including a mark of at least 50% in the final invigilated
examination.

1. Assignment 1
Due date:

Monday 26th March 2007

This assignment is worth 15% of your final grade.

Read the questions carefully and in your answer address the concepts and issues
associated with each question.

Where word limits have been stated for parts of a question (this excludes diagrams,
tables, footnotes and references), they should be seen as guidelines only, however,
answers which differ greatly from the word limit may be penalised.

No word limits have been given for calculation type questions; however, all
calculations must be shown for these questions.

Use the word limit as a guide to the depth of answer expected.

Remember DO NOT PLAGIARISE. Read the Facultys policy on plagiarism, which can
be found at the beginning of the Unit Book.

Refer to the section Q Manual in your Unit Outline for assistance. You may use
either the Harvard (in text) or Vancouver system of referencing.

You must note the source of all information quoted directly including equations and
diagrams.

You must also note the source of key ideas and information even if not quoted directly.

Read the sections on assignment submission and criteria for assessment in your Unit
Outline (and available on website) and make sure that you have addressed each
requirement.

A Reference list must be included with your answer even if you only use the text
as reference. Failure to include a reference list will result in zero marks for the
assessment.
1

Assignments

Question 1 (skills and content covered in Week 2) marks = 30

(a) Using diagrams and examples to help you, clearly distinguish between the following:
(i)

an increase in quantity demanded and an increase in demand

(ii) an increase in quantity supplied and an increase in supply.

(10 marks 400-500 words)
(b) Use the information in the table below to answer the following questions.
Supply and Demand schedules for Coal
Price
($)
10.00
15.25
20.50
25.75
30.00
35.25
40.50
43.75
45.00
50.25
55.50
(i)

Quantity Demanded
(tonnes)
550.0
523.8
497.5
471.3
450.0
423.8
397.5
381.3
375.0
348.8
322.5

Quantity Supplied
(tonnes)
280.0
295.8
311.5
327.3
340.0
355.8
371.5
381.3
385.0
400.8
416.5

Graph the information in the table i.e. graph the demand and supply curves.
Note: This may be hand drawn using graph paper.

(ii) What is the equilibrium price and quantity of coal in this market? Indicate on your
diagram.
(iii) If the price of coal increased to $55.50, what happens to the quantity demanded
and quantity supplied of coal? Indicate this on your diagram.
(iv) What situation would exist in the market at this price? How would market forces
rectify this situation?
(3 + 2 + 2 + 3 = 10 marks)
(No word limits are given here only brief answers are required in each case)
(c) Use a diagram such as Figure 4.9 of your prescribed textbook as a base to explain the
impact on the market for fish of the release of scientific evidence linking the
consumption of fish to dramatically improved health levels.
You must use the three steps (given in your Unit Guide for off-campus students, or on
the unit MUSO site under Weekly Study Program, Week 2) in explaining your answer.
(10 marks 300-400 words)
2

Introductory Microeconomics

Question 2 (skills and content covered in Week 3) marks = 20

(a) Clearly differentiate between a consumers indifference curve and budget constraint.
(2 marks brief explanation of each)
(b) A consumer can purchase either apples or bananas. The price of apples is $3 per Kg,
while the price of bananas is $4 per Kg. The consumer is currently spending all of
his/her income purchasing 4Kg of apples and 6Kg of bananas.
(i)

What is the consumers total income?

(ii) Construct the consumers budget constraint.

(3 marks)
(c) Assume the marginal utility to the consumer of consuming the 4th apple is 12 and the
marginal utility to the consumer of consuming the 6th banana is also 12.
Use the information from part (b) as well as that provided here to determine which of
the following options the consumer should choose to do next if they wish to maximise
satisfaction (reach equilibrium)? You must explain your reasoning here.
(i)

buy more apples and less bananas

(ii) buy more bananas and less apples

(iii) buy more of both bananas and apples
Hint: Refer back to the For your information box in your textbook on page 460
(5 marks approx 200 words)
(d) Use an Indifference curve/budget constraint diagram to fully explain how the theory of
consumer choice can be used to derive a consumers demand curve. In doing so, you
must discuss the derivation of the demand curve using the impact on consumer
behaviour following a fall in price.
Note: You do not need to use actual prices and quantities in your answer.
(10 marks approx 400-500 words)

Assignments

Assignment 2
Due date:

Monday 7th May 2007

This assignment is worth 15% of your final grade.

Read the questions carefully and in your answer address the concepts and issues
associated with each question.

Where word limits have been stated for parts of a question (this excludes diagrams,
tables, footnotes and references), they should be seen as guidelines only, however
answers which differ greatly from the word limit may be penalized.

No word limits have been given for calculation type questions; however, all
calculations must be shown for these questions.

Use the word limit as a guide to the depth of answer expected.

Remember DO NOT PLAGIARISE. Read the Facultys policy on plagiarism, which can
be found at the beginning of the Unit Book.

Refer to the section Referencing Requirements in your Unit Outline for assistance.
You may use either the Harvard (in text) or Vancouver system of referencing.

You must note the source of all information quoted directly including equations and
diagrams.

You must also note the source of key ideas and information even if not quoted directly

Read the section on criteria for assessment in your Unit Outline and make sure that
you have addressed each requirement.

A Reference list must be included with your answer even if you only use the text
as reference. Failure to include a reference list will result in zero marks for the
assessment.

Introductory Microeconomics

Question 1 (skills and content covered in Week 7) marks = 20

(a) Explain why governments often control or regulate public goods and common
resources. Give examples of each good and of the types of regulation or control that
may exist.
(6 marks 300-400 words)
(b) The following data was compiled by XYZ company which was asked by the
Government to report on the costs and benefits of constructing a new water reservoir.
Option

Total annual
cost of
project $m

Marginal
cost
$m

Total annual
benefit
$m
(extra water
supplied)

No reservoir

Small
reservoir

10

12

Medium
reservoir

16

20

Large
reservoir

28

34

Super size
reservoir

42

40

(i)

Marginal
benefit
$

Net benefit
$m
(Total benefit
minus total
cost)

Calculate the missing values for marginal cost, marginal benefit and net benefit.
Note: Marginal cost is the change in total cost from building the next project, while
Marginal benefit, is the change in total benefit from building the next project. Net
benefit is total benefit minus total cost.
(2 marks)

(ii) What is the optimum size reservoir that should be built by the Government in this
case? Why?
(2 marks)
(c) When negative externalities arise, there will be an under-allocation of resources to
production. However, when positive externalities are present, too little will be produced
and consumed.
Do you agree/disagree with this statement? You must use diagrams illustrating
negative and positive externalities to explain your answer.
(10 marks 200-300 words)

Assignments

Question 2 (skills and content covered in Week 8) marks = 30

(a) Joes shoe shop has been operating for a number of years. Joe paid $150,000 for the
business, but has since been offered $500,000 to sell the business to a competitor.
The competitor also wants to re-employ Joe as manager at a salary of $40,000 if Joe
sells. Joe could earn 5% interest on the $500,000 if he were to sell the shop.
Joes current total revenue is $150,000 (from shoe sales)
Joes current expenses are $100,000 (wages, materials etc)
(i)

What are Joes explicit (accounting) costs in this example? Explain.

(ii) What are Joes implicit costs? Explain.

(iii) What is the total economic (opportunity) cost? Explain.
(iv) As an accountant, would you advise Joe to sell the shop or stay in business for
himself? Explain.
(v) As an economist, would you advise Joe to sell the shop or stay in business for
himself? Explain.
(2 marks each part = 10 marks)
(b) Use the data in the table below to answer the following questions:
(i)

Assume that a firms fixed costs are $300 and that its total cost is as given by the
table. What is the average variable cost of four units of output? Explain how you
calculated your answer and show all calculations.

(II) Assume that a firms fixed costs are $300 and that its total cost is as given by the
table. What is the marginal cost of the 6th unit of output? Explain how you
calculated your answer and show all calculations.
Output

Total cost

300

460

600

800

1100

1900

2800
(3 marks each part = 6 marks)

Introductory Microeconomics

(c) ABC Production Company notices that at its current level of output, its average total
costs are beginning to rise. What must be happening to its average variable costs,
average fixed costs and marginal costs at this level of output? You should use a
diagram showing these cost curves to explain your answer.
(8 marks 200-300 words)
(d) Use the data in the table below to answer the following questions.
(i)

What is meant by the term economies of scale? At what level(s) of output do

economies of scale occur?

(ii) What is meant by the term diseconomies of scale? At what level(s) of output do
diseconomies of scale occur?
(iii) What is meant by the term constant returns to scale? At what level(s) of output do
constant returns to scale occur?
Quantity/output
(000s)

Long run ATC

$200

$150

$120

$120

$210

$250

(2 marks each brief explanation only = 6 marks)

Assignments