Economics Questions Thread

[TazzyGirl]

I'm trying to complete this case study on relative prices, and I have to identify and explain microeconomic demand factors influencing costs to do with alcohol and entertainment...but I'm so confused.
What exactly are microeconomic demand factors?

[chasej]

I'm trying to complete this case study on relative prices, and I have to identify and explain microeconomic demand factors influencing costs to do with alcohol and entertainment...but I'm so confused.
What exactly are microeconomic demand factors?

Microeconomics is the study of certain individual markets/industries within an economy in general terms. Demand factors are factors which effect levels of demand. Thereby microeconomic demand factors are all the factors that effect
Individual markets demand levels and factors applicable to each market will change.

For example. An anti alcohol advertising campaign will likely reduce demand for alcohol. And a decrease in discretionary income is likely to reduce demand for entertainment.

[TazzyGirl]

Could some demand side factor be things like tastes and fashions, income levels and substitute/complimentary products? Or am I completely on the wrong track..

[chasej]

Could some demand side factor be things like tastes and fashions, income levels and substitute/complimentary products? Or am I completely on the wrong track..

Everything you listed can be demand factors. You're on the right track.

Just think "does this have a direct effect on consumers willingness and/or ability to buy x thing?"  If the answer is yes then it's a demand factor.

[TazzyGirl]

That's a good way to look at it! Thanks - I'm starting to get the hang of it!

[dantan]

The other way I find useful to think about it is in terms of yourself. What influences your own personal willingness or ability to actually buy alcohol/entertainment? It's sort of the same thing, just an alternate perspective with which to look at it.

[millie96]

 Assume that there was a free and competitive international
market for oil. With reference to demand and supply (market theory), suggest two important reasons that would explain why the price of oil generally trended upwards between 2004 and late 2012.   (2 + 2 = 4 marks)

[dantan]

Assume that there was a free and competitive international
market for oil. With reference to demand and supply (market theory), suggest two important reasons that would explain why the price of oil generally trended upwards between 2004 and late 2012.   (2 + 2 = 4 marks)

Ok, so first thing to look at in this question is the structure; it's fairly clear cut. So basically they are just looking for a demand side and a supply side reason for which the price has risen.

So on the demand side, we know for the price to go up, the demand curve should be shifting to the right. Perhaps think of things like greater international demand from developing countries etc.?

On the supply side we're looking for a factor that resulted in a constraint in supply (something that shifts the supply curve to the left). So thinking of things like political civil disruption in the Middle East that might have resulted in less supply of oil.

Hope that helps

[Politics]

Ok, so first thing to look at in this question is the structure; it's fairly clear cut. So basically they are just looking for a demand side and a supply side reason for which the price has risen.

So on the demand side, we know for the price to go up, the demand curve should be shifting to the right. Perhaps think of things like greater international demand from developing countries etc.?

On the supply side we're looking for a factor that resulted in a constraint in supply (something that shifts the supply curve to the left). So thinking of things like political civil disruption in the Middle East that might have resulted in less supply of oil.

Hope that helps

I had some issues with that question myself, that helped alot, thanks!

[Politics]

I am looking in the CPAP Study Guide at the moment, and it has a exam tip that is confusing me, although it seems really simple
"Like before, don't get confused about the relationship between price and quantity supplied. A price decrease will be associated with higher supply levels if the increase in supply is what came first (shift to the right). However a a price increase will be associated with a higher supply levels if the price increase is what cam first (shift to the right demand)"

Any help would be awesome, cheers!

[abcdqdxD]

It's just saying increase supply -> decrease price. However, increase demand -> increase price (but also increase supply in the longer term).

[millie96]

Could somebody please critique this answer and tell me what I'm missing?

In relation to how Australia's price mechanism will allocate resources (5 marks)

1. Firms will originally allocate resources to what they assume will be the most profitable product (consider relative scarcity)
2. Consumers will respond with price signals (e.g. dollar votes) which represents the demand of a product, representing those products which are highly sought after compared to those who are not - thus, consumer sovereignty dominates the market.
3. Firms react to price signals and thus change relative prices between particular goods or services in order to create a new equilibrium point between supply and demand
4. Firms will identify which products have a high relative profit, and therefore reallocate their resources to these products to increase profit maximisation

Thanks

[abcdqdxD]

Could somebody please critique this answer and tell me what I'm missing?

In relation to how Australia's price mechanism will allocate resources (5 marks)

1. Firmss will originally allocate resources to what they assume will be the most profitable product (consider relative scarcity)
2. Consumers will respond with price signals (e.g. dollar votes) which represents the demand of a product, representing those products which are highly sought after compared to those who are not - thus, consumer sovereignty dominates the market.
3. Firms react to price signals and thus change relative prices between particular goods or services in order to create a new equilibrium point between supply and demand
4. Firms will identify which products have a high relative profit, and therefore reallocate their resources to these products to increase profit maximisation

Thanks

Looks good, but for 5 marks you really need an example. Theory explanation is not sufficient for 4 or 5 marks.

[M_BONG]

These questions are driving me crazy... Can anyone help explain to me..
1. If a competitive market existed for vegetables, the price may fall as a result of:
A a poor growing season adversely affecting producers.
B the development and use of new higher yielding types of seed.
C a switch by consumers from meat to a vegetarian diet.
D lower labour productivity by vegetable growers.

Answer is A...

2.
Which of the following is unlikely to increase the free market price of woollen mini-skirts?
A  A successful and compelling mini-skirt advertising campaign by models
B Rising consumer confidence and disposable incomes among teenage skirt buyers
C The implementation of a special report by the government’s Minister for Primary Industry (who followed the fashion industry closely), recommending the abolition of all taxes on clothing producers
D The government paying a cash subsidy to wool growers, designed to encourage higher production levels

I chose B because this increases demand and therefore reduces the price? Why is the answer C?


3.
Regarding the market or price mechanism, which statement is false?
A Relatively lower market prices for a good or service usually
indicate underproduction or shortages of the good or service.
B Relatively higher market prices for a good or service usually signal that firms have allocated too few resources towards the particular area of production.
C In general, the market does not efficiently allocate resources if factors such as monopolies and oligopolies restrict the free movement of prices up or down to reflect either shortages or overproduction.
D Changing market conditions of demand or supply may alter the equilibrium price of a particular good or service.

I chose B because when prices are high, suppliers are more willing to supply resources? Therefore, the statement is false Answer is A...


ALSO:
DISCUSS TWO REASONS FOR GOVERNMENT INTERVENTION IN MARKETS
My teacher said the two main reasons are: to redistribute income to reduce inequality AND to stabilise economic activity.

But I have never learned about those two... (didn't do 1/2)

All I know about income distribution is that income should be progressive  so every individual can receive the most essential goods etc and I don't even know what economic stability is...

Can I talk about reducing asymmetric information and deregulating markets to increase competitions? Are those two valid points..

[abcdqdxD]

These questions are driving me crazy... Can anyone help explain to me..
1. If a competitive market existed for vegetables, the price may fall as a result of:
A a poor growing season adversely affecting producers.
B the development and use of new higher yielding types of seed.
C a switch by consumers from meat to a vegetarian diet.
D lower labour productivity by vegetable growers.

Answer is A...

2.
Which of the following is unlikely to increase the free market price of woollen mini-skirts?
A  A successful and compelling mini-skirt advertising campaign by models
B Rising consumer confidence and disposable incomes among teenage skirt buyers
C The implementation of a special report by the government’s Minister for Primary Industry (who followed the fashion industry closely), recommending the abolition of all taxes on clothing producers
D The government paying a cash subsidy to wool growers, designed to encourage higher production levels

I chose B because this increases demand and therefore reduces the price? Why is the answer C?


3.
Regarding the market or price mechanism, which statement is false?
A Relatively lower market prices for a good or service usually
indicate underproduction or shortages of the good or service.
B Relatively higher market prices for a good or service usually signal that firms have allocated too few resources towards the particular area of production.
C In general, the market does not efficiently allocate resources if factors such as monopolies and oligopolies restrict the free movement of prices up or down to reflect either shortages or overproduction.
D Changing market conditions of demand or supply may alter the equilibrium price of a particular good or service.

I chose B because when prices are high, suppliers are more willing to supply resources? Therefore, the statement is false Answer is A...


ALSO:
DISCUSS TWO REASONS FOR GOVERNMENT INTERVENTION IN MARKETS
My teacher said the two main reasons are: to redistribute income to reduce inequality AND to stabilise economic activity.

But I have never learned about those two... (didn't do 1/2)

All I know about income distribution is that income should be progressive  so every individual can receive the most essential goods etc and I don't even know what economic stability is...

Can I talk about reducing asymmetric information and deregulating markets to increase competitions? Are those two valid points..

2) "unlikely"
3) B is true because price increases signal an undersupply. A is false because underproduction/shortages result in higher market prices not lower market prices

govt intervention:
- adjust level of economic activity
- overcome market failures (free rider problem, asymmetric information, etc.)

economic stability means the economy is not growing too rapidly (which results in inflation) or too slowly (which results in high unemployment)