Economics Questions Thread

[M_BONG]

This is a question from MHS SAC 2013 (no solutions given, unfortunately)

Which of the following is not a government attempt to correct market failures?
A- Competition and Consumer Act 2010
B - Charging $23/tonne to polluters for carbon emissions
C - The implementation of a personal income tax
D- Government provision of minor roads.

Spoiler

I chose C because D is the government contributing to a market failure? BUT I thought income redistribution is not an example of govt. correcting market failures?

ALSO, one quick question: Does opportunity cost have to be in dollars, or can it be just a policy?

Eg. NDIS - approx $500 mill
Gonski reform - approx $500 mill
Five F/A 18 Hornets for Defence - approx 500 mill

Assuming the government makes a rational decision, What is the opportunity cost from implementing Gonski reform if a feasibility study finds that the most value will be gained from the Gonski reform, followed by the NDIS then the F/A 18 Hornets.


A- Benefit gained from introducing a NDIS
B- $500 million
C- Impossible to tell
D - Benefit from NDIS and purchasing five F/A 18s.

Spoiler

I chose B because I think opportunity cost has to be assigned a monetary value. I am also leaning towards A.

Thanks!!
 

[abcdqdxD]

This is a question from MHS SAC 2013 (no solutions given, unfortunately)

Which of the following is not a government attempt to correct market failures?
A- Competition and Consumer Act 2010
B - Charging $23/tonne to polluters for carbon emissions
C - The implementation of a personal income tax
D- Government provision of minor roads.

Spoiler

I chose C because D is the government contributing to a market failure? BUT I thought income redistribution is not an example of govt. correcting market failures?

ALSO, one quick question: Does opportunity cost have to be in dollars, or can it be just a policy?

Eg. NDIS - approx $500 mill
Gonski reform - approx $500 mill
Five F/A 18 Hornets for Defence - approx 500 mill

Assuming the government makes a rational decision, What is the opportunity cost from implementing Gonski reform if a feasibility study finds that the most value will be gained from the Gonski reform, followed by the NDIS then the F/A 18 Hornets.


A- Benefit gained from introducing a NDIS
B- $500 million
C- Impossible to tell
D - Benefit from NDIS and purchasing five F/A 18s.

Spoiler

I chose B because I think opportunity cost has to be assigned a monetary value. I am also leaning towards A.

Thanks!!

first one is C - income redistribution is not a market fialure

second is A because it is the next best alternative

[M_BONG]

Which of the following will result in a shift in the demand curve for the new Kia Soul Car?
A. Falling petrol prices
B. Higher car prices of competitiors
C. A subsidy paid to producers of cars
D. Higher raw material prices in the production of cars.


I chose B. But the answer is A. Can anyone explain?

[chasej]

Which of the following will result in a shift in the demand curve for the new Kia Soul Car?
A. Falling petrol prices
B. Higher car prices of competitiors
C. A subsidy paid to producers of cars
D. Higher raw material prices in the production of cars.


I chose B. But the answer is A. Can anyone explain?

Very ambigious question both A and B could be considered correct. Because A decreases the cost of using a car, thus meaning more consumers are likely to use cars. An increase in the cost of a substitute to the car would also shift the demand curve.

Both A and B are correct in my opinion. Though A is probably the "best" answer if I absolutely had to choose as it is not clear what caused the higher car prices of competitors (it could have been a increase in demand for competitors cars and less demand for the kia), while petrol is more clear cut and clear as to it's cause and effect.

[abcdqdxD]

Which of the following will result in a shift in the demand curve for the new Kia Soul Car?
A. Falling petrol prices
B. Higher car prices of competitiors
C. A subsidy paid to producers of cars
D. Higher raw material prices in the production of cars.


I chose B. But the answer is A. Can anyone explain?

Higher prices set my competitors is a MOVEMENT along the demand curve, not a shift. Therefore, the only correct answer is A where demand has increased (shifted to the right) as cheaper fuel leads to greater demand for cars as a method of transportation. Technically speaking, you could argue for B and I must admit it isn't a great question.

[chasej]

Higher prices set my competitors is a MOVEMENT along the demand curve, not a shift. Therefore, the only correct answer is A where demand has increased (shifted to the right) as cheaper fuel leads to greater demand for cars as a method of transportation. Technically speaking, you could argue for B and I must admit it isn't a great question.

But it's saying higher car prices of competitors i.e. a substitute and the question is asking whether this would shift demand for a kia, a higher price for a substitute would likely cause a shift of demand to the right for kias.

Essentially, from the way I understand the question, the rise in price of competitors and the kia demand shift are on two separate supply/demand diagrams and being treated as two separate markets for products which are substitutes for eachother.

[millie96]

Can somebody please explain to me how asymmetric information causes market failure?

[TazzyGirl]

Well, buyers and sellers need to have complete and reliable knowledge of all the relevant information affecting their economic decisions. Sometimes in the market, sellers may have more information than buyers (Antique shops is the example my class used) so rational choices are unable to be made, because sellers will pay less or take advantage of their more extreme knowledge.
It means decisions about resource allocation can't be made either, so the market fails to work efficiently and society's overall wellbeing is reduced.
Governments can use legislation or laws to fix this, or things such as advertising campaigns in order to educate and inform consumers about the particular product. (QUIT campaign, which aims to encourage people to quit smoking)

Good luck, hope this helps

[Politics]

I'm kind of confused about when a market is attempting to restore equilibrium.
If there are a surplus of goods, then the suppliers drop the price to try to get rid of the shortage, while the prices are being lowered to try to restore eQ will the amount supplied increase or decrease? ?Also with the opposite way, if there is a shortage and suppliers are raising prices for profit, will the amount being supplied increase or decrease?
Any help would be much appreciated!

[Summers]

I'm kind of confused about when a market is attempting to restore equilibrium.
If there are a surplus of goods, then the suppliers drop the price to try to get rid of the shortage, while the prices are being lowered to try to restore eQ will the amount supplied increase or decrease? ?Also with the opposite way, if there is a shortage and suppliers are raising prices for profit, will the amount being supplied increase or decrease?
Any help would be much appreciated!

Hey you haven't been on Skype for a while,

Anywho, when there is a change in equilibrium as a result of a surplus/glut, the supplier will lower the price so demand will correspond with their current supply. The supplier will not increase or decrease their supply unless they experience a shortage as a result of the price lowering, and will thus increase their supply in the search for a more efficient equilibrium. To the second question, if there is a shortage and prices are raised, the supply would usually stay the same as demand will drop for the product. This is where you would start branching into hypothetical land where you would be like 'but, if this product had inelastic demand (PED is >1 I think, correct me if I'm wrong) the demand would stay the same with the shortage and the change in price, and a new equilibrium would be found with an increased price.' Always write about the e(a)ffect of a change too.

[Politics]

Hey you haven't been on Skype for a while,

Anywho, when there is a change in equilibrium as a result of a surplus/glut, the supplier will lower the price so demand will correspond with their current supply. The supplier will not increase or decrease their supply unless they experience a shortage as a result of the price lowering, and will thus increase their supply in the search for a more efficient equilibrium. To the second question, if there is a shortage and prices are raised, the supply would usually stay the same as demand will drop for the product. This is where you would start branching into hypothetical land where you would be like 'but, if this product had inelastic demand (PED is >1 I think, correct me if I'm wrong) the demand would stay the same with the shortage and the change in price, and a new equilibrium would be found with an increased price.' Always write about the e(a)ffect of a change too.

Thanks for explaining that, and yeah, my computer's psu blew up a month and a half a go (roughly) and i haven't got around to getting a new one yet, maybe in the holidays or sometime soonish. So i'm just using my mum's computer for surfing the web, hopefully will be back on soon though!

[M_BONG]

"If a large oligopoly like SPC leaves the market, competitors like Heinz will have larger market share"

Comment on the effect of SPC leaving the tomato processing industry on the price elasticity of demand. for Heinz canned tomatoes.

??
Someone help me pls. Price elasticity was not really covered well by our teacher.

[chasej]

"If a large oligopoly like SPC leaves the market, competitors like Heinz will have larger market share"

Comment on the effect of SPC leaving the tomato processing industry on the price elasticity of demand. for Heinz canned tomatoes.

??
Someone help me pls. Price elasticity was not really covered well by our teacher.

Explanation of elasticity:

Elasticity is the way in which demand and supply responds to price changes. Demand elasticity referring to the extent to which demand responds to price changes and supply elasticity the same for supply's responsiveness.

When supply/demand is inelastic it means S/D has a lower percentage change then the percentage change of prices. For example if prices went down 10%, and demand went up 2%, demand would be inelastic.

Elastic means the percentage of change in S/D occurring as a result of that price change would be greater than the change in price.

Unit elasticity means both percentages are equal.

Back to the question (this question requires a few levels of thinking-in a SAC situation I imagine it would be worth around 4 marks) :

Oligopoly is a market where a few large firms dominate the market. Thus a large firm like SPC leaving the market means the remaining large firms are likely to gain much more marketshare, thus competition would be greatly reduced and a duopoly/monopoly situation may occur.

SPC leaving the market would create less elasticity of demand (or in other words make demand more inelastic) in the market for Heinz, this is because with less competition in the market, consumers have no choice but to purchase from Heinz, meaning no matter what price changes occur it is likely consumers would still have to purchase tomatoes from Heinz (or their would be less options at minimum). Thus causing demand to be less responsive to price changes than before.

(If you look at problems associated with the market failure of market power this is actually one of the big problems, less competition=less options=firms can take advantage of that and charge high prices knowing consumers would probably still have to purchase their product, thus earning super normal profits (profits greater then they actually need to operate their business).

[Summers]

"If a large oligopoly like SPC leaves the market, competitors like Heinz will have larger market share"

Comment on the effect of SPC leaving the tomato processing industry on the price elasticity of demand. for Heinz canned tomatoes.

??
Someone help me pls. Price elasticity was not really covered well by our teacher.

Lol I got this on my first SAC ... COMPAK

[TazzyGirl]

I'm pretty confident in short answer questions for my upcoming SAC...but Multiple choice questions, I always stuff them up - I barely get half of them right. I have no idea how to fix this!