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1 Which of the following is not a microeconomic issue?

01 / 10 / 2021 Economics

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QUESTION 1 (5 marks)

Answer the following 10 Multiple-choice questions and enter the answers into the following table

1 Which of the following is not a microeconomic issue? 

A.How will a decrease in the price of tattoo removal affect the quantity of tattoos applied?

B.What will cause the rate of growth in consumer spending to fall? 

C.How does a tax on the sale of houses affect the quantity of houses sold? 

D.Would a move by the G20 to raise infrastructure spending in member countries help promote economic growth?

2 When it comes to positive economics, economists could disagree because 

A.Some are left wing and others are right wing. 

B.They are being paid by different parties who are hoping for different outcomes from the analysis they have commissioned. 

C.The assumptions of their models differ. 

D.Both b and c above are correct.

3. The statement: ‘John buys more of good X as his income increases, ceteris paribus’, means:

A.John’s income is being held constant.

BJohn’s purchases of good X are being held constant.

C.John’s income and purchases of this good are being held constant.

D.John’s income is the only influence that is being allowed to change.

4. The production possibilities frontier illustrates all of the following concepts except.

A.the law of increasing costs 

B.unlimited wants.


D.opportunity cost.

Assume Australia can use a given amount of its resources to produce either 20 caravans or eight automobiles and Japan can employ the same amount of its resources to produce either 20 caravans or 10 automobiles. Australia should specialise in



C.both goods.

D.neither goods.

6 At a price of $5, Sam buys 10 units of a product. When the price increases to $6, Sam buys eight units. Martha says Sam’s demand has decreased. Is Martha correct?

A. Yes, Martha is correct. Sam’s demand has decreased.

B. No, Martha is incorrect. Sam’s demand has increased.

C. No, Martha is incorrect. Sam’s quantity demanded has decreased, and his demand has not changed.

D. No, Martha is incorrect. Sam’s quantity demanded has increased, and his demand has increased..

7.  Consider the following statement: ‘Due to the drought the quantity of water available for consumption reduced dramatically’. This will cause a/an

A. downward movement along the supply curve for water.

B. upward movement along the supply curve for water.

C. leftward shift in the supply curve for water.

D. rightward shift in the supply curve for water.

8 Which of the following will not shift the demand curve for motorbikes?

A. An increase in the price of motorbikes.

B. An increase in consumer income.

C. An increase in the price of bicycles (a substitute).

D. An increase in the price of helmets (a complement)..

9. If the price of fish rises, then the demand for chips will

A. rise.

B. fall assuming that they are a complement to each other.

C. remain unchanged..

D. react unpredictably.

10. Suppose prices for new homes have risen, yet sales of new homes have also risen. We can conclude that

A. the demand for new homes has risen.

B. the law of demand has been violated.

C. new firms have entered the construction industry.

D. construction firms must be facing higher costs.

QUESTION 2 (5 marks)

Market researchers have studied the market for rice. Their estimates for the supply of and demand for rice per month are as follows:

a) Using the accompanying data, graph the demand for rice and the supply of rice. Identify the equilibrium point as E and use dotted lines to connect E to the equilibrium price on the price axis and the equilibrium quantity on the quantity axis (1 mark).

b) Suppose the government enacts a rice support price of $2 per kilo. Indicate this action on your graph and explain the effect on the rice market. Why would the government establish such a support price? (2 marks).

c) Now assume the government decides to set a price ceiling of $1 per kilo. Show and explain how this legally imposed price affects your graph of the rice market. What objective could the government be trying to achieve by establishing such a price ceiling? (2 marks).

QUESTION 3 (5 marks)

a)Suppose a manufacturing jeweller raises the price of a particular style of diamond ring she manufactures from $36 000 to $64 000. As a result, the number of persons purchasing this ring each year falls from 28 to 22. Calculate the price elasticity of demand. Is demand elastic, unitary elastic or inelastic? (2 marks)

b)Will each of the following changes in price cause total revenue to increase, decrease or remain unchanged? (3 marks)

i)Price falls and demand is elastic. 

ii)Price rises and demand is elastic. 

iii)Price falls and demand is unitary elastic. 

iv)Price rises and demand is unitary elastic. 

v)Price falls and demand is inelastic. 

vi)Price rises and demand is inelastic.

QUESTION 4 (5 marks)

a)Using the following table, construct the cost schedule for a firm operating in the short run. (4 marks)

b)Graph the average variable cost, average total cost and marginal cost curves. (1 mark)


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