Section A: Multiple Choice Questions (10) – 10 marks

Refer to Graph 1 above to answer question 1.

Graph 1

1.          Which of the following scenarios would explain the change in equilibrium shown in the graph?

a)  The price of a substitute of this good increased.

b) A number of firms left the market.

c)  A number of buyers entered the market, and a number of firms entered the market.

d) The price of a complement of this good increased.

2.          When both supply and demand decrease, the equilibrium price ________ and the equilibrium quantity ________.

a)   increases; increases

b)   decreases; is indeterminate

c)   increases; is indeterminate

d)   is indeterminate; decreases

3.

Suppose that Good X is an inferior good. The price of Good X is $9 and the quantity is 6,000 units, at the original equilibrium. If income increases, ceteris paribus, which of the following would be the new equilibrium of Good X?

a)   $11 and 8,000 units

b)   $11 and 4,000 units

c)   $7 and 8,000 units

d)   $7 and 4,000 units

4.

When the total revenue is unchanged despite the change in price, demand is

a)   inelastic

b)   unitary elastic

c)   horizontal

d)   vertical

5.

Which of the following would increase the total revenue of a firm?

a)   The demand is inelastic and the price decreases.

b)   The demand is inelastic and the price increases.

c)   The demand is elastic and the price increases.

d)   The demand is unitary elastic and the price is unchanged.

6.

A Nash equilibrium occurs when

a)   a decision-maker faces an incentive to move away from their current strategy

b)   all decision-makers are better off moving away from the current strategy

c)   all decision-makers cooperate with each other

d)   all decision-makers choose to keep the current strategy

Refer to Table 1 below to answer question 7.

Table 1

7.

Assume that Jane adopts her dominant strategy.

If John decides to confess, he will spend ________ years in jail, and if John decides to keep quiet, he will spend _______ years in jail.

a)     10; 25

b)    25; 10

c)     10; 0

d)    0; 10

Refer to Graph 2 below to answer questions 8 to 10

Graph 2

8.          Graph 2 above illustrates a firm in a monopolistically competitive industry. The short-run profit-maximizing output for the firm in Graph 3 is ________ units per day.

a)   200

b)   400

c)   600

d)   800

9.          If all firms in this monopolistically competitive industry are the same as the firm illustrated in Graph 2, in the long run

a)   some firms will leave the industry

b)   all firms will earn positive economic profits

c)   the competition from new firms that enter the industry will increase

d)   some firms will earn positive economic profits and others will experience economic loss

10.        In the long run, the firm shown in Graph 2 can expect its demand curve

a)   to remain the same, making it impossible for new firms to enter

b)   to shift rightward

c)   to shift leftward

d)   to move closer to the marginal revenue curve that is held constant

Section B: Short answer questions (6) – 40 marks

Question 1 – Demand, supply and market equilibrium (5 marks)

Consider the market for organic vegetables. Typically, organic vegetables are more expensive than the conventionally grown non-organic vegetables. For each situation given below, analyse  how the market equilibrium will change.

i.      More and more people are adopting a lifestyle of healthy eating. Vegetables are widely accepted as an essential part of healthy eating. 1.5 marks

ii.      Organic farmers develop new and improved ways of farming 1.5 marks

iii.      Many conventional vegetable growers convert their farms, to organic farming. Simultaneously, cost of living increases and many people find it difficult to live well. 2 marks

Question 2 – Demand, supply, and government price-setting – Paragraph writing (5 marks)

Using the market for rental apartments as an example, write a paragraph to answer the following questions

•    Why do governments use price controls to intervene in the free market?

• What are the unintended consequences of such government intervention?

Hint: Your answer should:

•  identify and explain the relevant economic concepts

•  apply them to the example of labour market, and

•  have a minimum of 100 words

Question 4 – Market structures – Monopoly (6 marks)

Graph 2 - Monopoly

The above graph relates to a monopolist selling a unique clothing item in regional Australia.  Assume that the monopolist is operating at the profit maximising output level.

a.    Find the following information for the monopolist.

i.      Current output and price

ii.      Total revenue

iii.      Total cost

iv.      Total profit 2 marks

b.   What is the socially efficient price and quantity? 1 mark

a.   Does the monopoly depicted in the graph create deadweight loss (DWL)?

Explain why or why not. The answer should specifically incorporate information from Graph 2. 3 marks

Question 5 – Market structures – Paragraph writing (4 marks)

Street food markets are considered an example of perfect competition. Write a paragraph to explain whether you agree with this or not.

Hint: Your answer should:

•  identify and explain at least three characteristics of perfect competition

•  apply them to the example of street food market, and

•  have a minimum of 100 words