Eco501 201730 S I-26 Assessment Answer

Assessment item 1

Task

Assignment 1 consists of two problem questions (worth 5 marks each) based on text material. Text material which may be relevant to this question may be drawn primarily from any of Text chapters 1,2, 3 and 4.

Answer the following:

Question 1

“Economic models are false and so government should ignore their predictions.” Explain, discuss and evaluate the accuracy of this statement.

Question 2

Using the economics or other literature (but not the textbook) to identify estimates of the price elasticity of demand for at least three different products. Provide full citations for the employed literature. Comment on the magnitudes of these estimates in relation to the standard economic determinants of the price elasticity of demand.

Rationale

The question addresses the following learning outcomes:

• be able to apply demand and supply analysis to make a range of market-related decisions.
• be able to identify and critically evaluate opportunities for specialisation and exchange.
• be able to make decisions that incorporate the relevant benefits and cost analysis

Assessment item 2

Task

Question 1

Assume the government wishes to reduce alcohol consumption by considering a higher excise tax on alcohol products. Collect information on estimates for the price elasticity of demand for alcohol products. Based on these elasticity estimates illustrate using a demand/supply diagram(s) who bears the burden of the higher excise tax, consumers or producers.

As an alternative for reducing alcohol consumption assume the government is also considering the imposition of a minimum price on alcohol products. Using a demand/supply diagram illustrate the consequences of imposing a minimum price on alcohol for the consumption of alcohol products.

Provide comment on the relative merits of increasing excise taxes compared to imposing a minimum

price on alcohol products for reducing alcohol consumption.

Assessment item 3

Question 1

Using data from the Australian Bureau of Statistics (ABS) http://www.abs.gov.au/ collect information on the consumer price index (CPI) and average weekly earnings for the period 2005 to 2015 inclusive. Employ annual figures. Define and provide sources for the data obtained including the ABS catalogue number.

Calculate the rate of inflation based on the CPI and the rate of average weekly earnings growth and plot the inflation rate and weekly earnings growth on a single diagram using time on the horizontal axis. Provide an economic interpretation of these time series plots.

Question 2

Employ the aggregate demand and supply model for the Australian economy, to analyse the consequences for real GDP and the general price level of the following scenarios. Confine your analysis to the short-run. In your response clearly state your assumptions and illustrate your answers with diagrams.

(a) the price of iron ore, a major export product, increases substantially,

(b) a favourable set of weather conditions leads to a substantial rise in Australian agricultural output,

(c) the government spends significant money in developing a broadband internet network across the

country,

(d) the price of oil, a product Australia primarily imports, fall substantially.