Managerial Economics
About the Book

Managerial Economics

1. Do some research on Milton Friedman and briefly highlight his main contributions to economics and political philosophy [2 marks].

2. Listen carefully to the following video and summarize the main points that he is making [3 marks]. To what extent is it related to Adam Smith’s invisible hand? [2 marks]

3. What are the main justifications that economic theory provides to government intervention? [3 marks] While government spending represented less that 5% of GDP in the US (and many other developed nations) at the beginning of the 20th century, it is now in the high 30% to 40% bracket. What explains such increase? [2 marks]

4. Build a simple supply and demand diagram with no government intervention and highlight the properties of the market equilibrium. [3 marks] Redraw the same diagram now highlighting the effect of a price cap that would be below the market price [3 marks].

5. Now assume that housing services can be represented by a supply and demand diagram as well. Starting with a market in equilibrium, highlight the short run and long run effect of introducing a first?home buyer grant and then phasing it out [3 marks].

6. Here is a quote from Frederic Bastiat: “There is only one difference between a bad and a good economist. The bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.Yet this difference is tremendous; for it almost always happens that when the immediate consequence is favourable, the later consequences are disastrous, and vice versa. Whence it follows that the bad economist pursues a small present good that will be followed by a great evil to come, while the good economist pursues a great good to come, at the risk of a small present evil.” Do some research on Bastiat and highlight his main contributions to economics. [2 marks] Find and explain two examples of economic policy decisions, not necessarily Australian, that illustrate his point. [2 marks]

7. Do some research on the Index of Economic Freedom and explain what it measures and how it is built. Find three countries that have moved up the ranking and three countries that have moved down the ranking in the latest edition of the Index, and explain why [3 marks].Where does Australia stand in this ranking and explain what could be made to further improve its position [2 marks].

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