Seven (7) Short Answer Questions/Problems
Content Coverage: Modules 2 & 3 (Weeks 4 to 9)
Due: Monday 21 September 2020 at 12 midnight (USQ time)
A cover page will go at the front of your assignment submission. It must contain the following information at a minimum: Name (in full), USQ student number, course title and number.
The answer to each of questions 1, 2 & 3 can be up to two (2) A4 pages in length. The answer to questions 4, 5, 6 & 7 can be up to one (1) A4 page in length.
Content which goes over the limit per question will not be marked.
Diagrams must be legible and fully labelled. Those that aren’t will be penalised.
Each question shall be marked out of five (5) – breakdown of marks is given for each question and sub-section.
Maximum length of your submission shall therefore be a maximum of eleven (11) pages.
References (if needed and up to a maximum of three) should be placed at the end of your answer to each question.
Files extensions that can be submitted are: doc, docx, rtf.
Title your file with your surname.
Submission is through the Assignment 2 portal which will be on the front page of the study desk.
1. Explain what will happen to the equilibrium price and quantity of butter in each of the following cases? Using a diagram (for each part) you should state whether demand or supply or both have shifted and in which direction:
a. A rise in the price of margarine
b. A rise in the demand for yoghurt
c. A rise in the price of bread
d. A rise in the demand for bread
e. An expected increase in the price of butter in the near future. (1 mark each)
2. A monopoly would be expected to face an inelastic demand, as the product they sell has no direct substitutes. Yet, if the monopolist produces where MR=MC, MR must be positive, and demand must therefore be elastic.
Can you solve this conundrum? Please use a diagram to illustrate and fully explain your answer.
3. If cannabis/marijuana is legalised in Australia:
a. Is the price of cannabis likely to go up or down? (1 mark)
b. Use a demand and supply diagram to illustrate your argument, considering the effects on both demand and supply. (2 marks)
c. Are price elasticities of demand and supply relevant to your answer? (1 mark)
d. What is the role of government likely to be in the market? (1 mark)
4. Imagine the pre-COVID 19 world.
a. Do low-cost airlines always charge lower prices than a traditional scheduled airline? If not, why not? (3 marks)
b. Why would holidaymakers have a relatively elastic demand for a particular flight? (2 marks)
5. In each of the cases below, why and how does a firm choose to separate its customers into two markets?
a. A hotel in the city centre offers weekend room discounts. (1 mark)
b. Private doctors charge their lower income patients less than their rich patients for plastic surgery. (1 mark)
c. What conditions must hold for price discrimination to be possible? (3 marks)
a. Discuss the sources of economies of scale in the airline industry. (2.5 marks)
b. Define economies of scope and give a real-world example. (2.5 marks)
a. What are the sources of strategic economic advantage and profits for a firm? (2.5 marks)
b. How can a firm maintain that advantage in the long run? (2.5 marks)