BUS102 Introduction Microeconomics

BUS102 Introduction to Microeconomics

  • BUS102 Introduction Microeconomics ThreeProblem-Solving Questions that require written answers
  1. General information
    • This group assignment is worth 20per centof total assessment and is to be submitted by 00pm, Tuesday 6September2016.
    • There are 3 questions and answer all 3 questions. Each question is worth 20 marks, consisting total of 60 marks all together. Then the BUS102 Introduction Microeconomicsmarks will be converted to a total of 20 mark scale to be uploaded in Moodle for 20 per cent of your total course assessment.
    • A hard copy of the assignment must be submitted to KOI Librarian in Kent street campus by 5.00pm, Tuesday 6September 2016. You must keep the receipt after the submission for your own record. You are also required to upload an electronic copy of the assignment in Moodle Turnitin by 5.00pm, Tuesday 6September 2016.
    • Late submission will attract loss of 5marks out of 20 marks(25 per cent), and the assignment submitted after 5.00pm Thursday 8September 2016will not be accepted and marked zero.
    • This assignment is a group assignment and each group must form a group of three (3) people.Less than threeor more than three-peopleassignment will not be accepted, unless permission is granted by lecturer (Dr Yeon Kim) for special circumstances.
    • Names and ID numbers of students in the group must be clearly printed on the Assignment Cover Sheet. A member,who has not contributed to the discussion and assignment, must be marked as “Not contributed” in a bracket following the student’s name and ID.
    • You must follow an appropriate format explained below. Not following appropriate format will cause a loss of some marks.
  • All written answers must be clearly typed and printed. Hand-written answers will NOT be accepted.
  • All assignment questions and sub-questions must be typed in order at the heading.
  • Separate each main question by different page. For example, if Question 1 (a) (b) (c) and (d) are answered on pages 1-2, then start Question 2 on page 3, etc.
  • You must analyse, explain and show how and why you draw your answers. Providing just answers without explanation will not receive full marks.
  • You mustalso draw and include appropriate and relevant graphs and tablestogether in your explanation. Draw them using Microsoft Power Point/Word/Excel, NOT hand-drawn.
    • Copying the assignment contents from other group assignment is a serious violation of copy right. It will be penalized and attract a VERY heavy loss of marks – “Fail”.
  • It is not difficult to identify the contents that are copied from other group(s).Write the answers in your own English words.
  • Make sure that nobody in your team shows your assignment to other group(s). Both who show the assignment and who copy the assignment will lose their marks heavily and fail in the assessment.
    • Each group must have a coordinator, who will submit ahard copy of the assignment to the KOI librarian and upload an electronic copy of the assignment in Moodle Turnitin.Only ONE COPY of the assignment from each group is required to be submitted (& uploaded).
    • Make sure you discuss and work together for ALL THREEquestions and MUST read and check the assignment before submission, once completed.
  1. Assignment Questions

Question 1: Answer the following questions – 20 marks

Opportunity Cost and Comparative Advantage

Australia can produce 50 barrels of ethanol or 30 tonnes of wheat a day, while the United States can produce 120 barrels of ethanol or 20 tonnes of wheat a day.

  • Which country has a comparative advantage in producing ethanol and which country has a comparative advantage in producing wheat? Explain why.(6 marks)
  • Initially, both Australia and the US spent half a day producing ethanol and half a day producing wheat. However, they now decide to specialise in producing the product that they have a comparative advantage and trade their products in the world market. What are the total gains from trade? Explain.(4 marks) 

Demand and Supply

The table sets out the demand and supply schedules for potato chips.


(cents    per bag)

(million bagsper week)


  • What are the market equilibrium price and quantity? Why?(2 marks)
  • Suppose a new dip increases the quantity of potato chips that people want to buy by 20 million bags per week at each price. How the demand and/or supply of chips change? Also, explain how the price and quantity of chips change. Show the changes on a graph.(3 marks)
  • The quantity of potato chips that people want to buy increases by 20 million bags per week at each price.Now suppose, at the same time, a new breed of potato increases production of potato crops and the quantity of potato chips produced increases by 30 million bags a week at each price. Explain how the market equilibrium price and quantity of chips change. What are the new market equilibrium price and quantity? Show the changes on a graph.(5 marks) 

Question 2: Answer the following questions– 20 marks

Elasticity of Demand and Supply, and Income

  • When July’s income increased from $1500 to $1800 a week, she increased her demand for concert tickets by 25 per cent and decreased her demand for bus rides by 6 per cent. Calculate July’s income elasticity of demand for (a) concert tickets and (b) bus rides.Show your calculation.Are the concert ticket and bus ride income elastic or inelastic? Is the concert ticket normal good or inferior good to July? Is the bus ride normal good or inferior good to July? Explain.(4 marks)
  • If a 7 per cent fall in the price of sushiincreases the quantity of wasabi demanded by 5 per cent and increases the quantity of sushi demanded by 3 per cent, calculate the price elasticity of demand for sushi and the cross price elasticity of demand for wasabi respect to the price of sushi. Does the elasticity indicate that sushi and wasabi are substitutes or complements? (3 marks)
  • The price elasticity of demand for domestic banana is –0.50. How much would the price of domestic bananahaveincreased if the demand for domestic bananadecreases by 5 per cent? However, this price riseincreases the quantity demanded forimported banana by 3 per cent.What is the cross price elasticity of demand for imported bananawith respect to the price of domestic banana?Does the elasticity indicate that domestic banana and imported banana are substitutes or complements?(3 marks)

Government Actions in Markets – Production Quotas and Subsidies


(dollars    per bag)

(bagsper week)


The table sets out the demand and supply schedules for rice in Japan.

  • Explain what happens to the price and the marginal cost of rice, if the government sets a production quota of 1,500 bags a week. What happens to consumer surplus and producer surplus?Draw a graph and explain your answers. (5 marks)

Government Actions in Markets – Price floor


(dollar per tonne)



(kilo tonnes)



(kilo tonnes)

1002,000        0
1501,400    600
2001,200    800
300    8001,200
350    6001,400
400        02,000


The table shows the demand and supply schedules for US wheat market.The US Farm Bill 2012 indicates that the domestic price of wheat will be set at $300 per tonne, which is above the market equilibrium level of $250 per tonne, in order to support for domestic wheat growers.  At the market equilibrium, 1,000 kilo tonnes(Kt) are supplied.

  • On a graph, explain how the price control in the US would change the consumer surplus, producer surplus, and deadweight loss in the domestic wheat market.In your explanation, compare and show the changes in surpluses and deadweight loss before and after the price control.(5 marks) 

Question 3: Answer the following questions– 20 marks

Global Markets in Action – International Trade Restrictions

Import Tariffs

Korea imports a large quantity of beef. With no beef trade, Korea’s equilibrium price for beef was $8 million per kilo tonne and equilibrium quantity was 450 kilo tonne. If Korea opens its beef market to trade with no tariff, domestic demand would be 750 kilo tonne and domestic supply would be 150 kilo tonne at the world price of $4 million per kilo tonne. However, Korea currently imposes 35 per cent tariff rate on imported beef. With 35 per cent tariff, Korea’s domestic supply and domestic demand were 300 kilo tonne and 600 kilo tonne respectively in 2015. Assume that intercept of supply curve is $2 million and demand curve is $15 million per kilo tonne.

  • With 35 per cent tariff rate, what would be the price of beef per kilo tonnes in Korea and what would be Korea’s beef import volume? Provide numeric details. (3 marks)
  • Based on the information given above, draw a graph to show the areas of gains and losses from the trade with 35 per cent tariff rate. Then, calculate the actual value of change in consumer surplus, producer surplus, tariff revenue and the amount of deadweight loss before and after the tariff. Show your calculation.  (6 marks)

BUS102 Introduction Microeconomics

Import Quotas

Franceexportscheese to Japan. But Japanimposes import quota on cheese imported from France.

  • Other things being unchanged, explain how this import quota would influence France’s cheese exports to Japan, consumer price of cheese in France’s domestic market, consumer surplus (CS) and producer surplus (PS) in France.(4 marks)
  • Producer Choice and Constraints
per week
Output (roses
per week)
(roses per week)
Marginal product
(roses per week)


  • Terri runs a rose farm. The following table provides information on the number of workers and corresponding output. Complete the table for Terri’s marginal product and average product of labour schedules. Briefly explain how you calculate and show your calculation. (2 marks)
  • ProPainters hires students at $250 a week to paint houses. It leases equipment at $500 a week. The table sets out its total product schedule. Calculate and construct ProPainters’ cost schedules – that is, total cost (TC), average fixed cost (AFC), average variable cost (AVC), average total cost (ATC) and marginal cost (MC) per house painted. Briefly explain how you calculate each cost schedule and show your calculation.  (5 marks)
Labour (workers

per week)

Output (houses


per week)







AVC (dollars per house)ATC


per house)

MC (dollars per house)



David Marks

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