Principles of economic revision questions

Week 31. Draw a typical market demand curve as found in your textbook. Why it is downward sloping?2. Do you think most demand curves are downward sloping? Can you think of an exception?3. Drawa typical market supply curve as found in your textbook. Why it is upward sloping?4. Is a vertical supply curve possible? Is a horizontal supply curve possible? What reasons could you give for such curves?5. Draw demand and supply curves together on the one plane. Where is the equilibrium price and equilibrium quantity? Why?6. What factors can cause a demand curve toshiftleftward or rightward?7. What factors can cause a supply curve toshiftleftward or rightward?

Week 41. Define the concept of "elasticity" in itself. What is wage elasticity of demand? What is wage elasticity of supply?2. What formula would you use to calculate wage elasticity of demand? Wage elasticity of supply?3. What kinds of "supply-side" policies could be used to reduce the number of children supplied to the labour market?4. What kinds of "demand-side" policies could be used to reduce employers' demand for child workers?5. Use the Marshallian demand-supply cross model. Assume demand-side and supply-side policies have the same effects on their respective demand and supply curves (the curves shift the same distances horizontally leftward). Compare the equilibrium price and quantity effects of the following:6. Demand-side policies when supply is relatively wageinelastic.7. Demand-side policies when supply is relatively wageelastic.

Week 51. What are the defining characteristics of a perfectly competitive market?2. Draw a diagram of the representative firm in equilibrium in a perfectly competitive market in the long run. Label the long run average cost curve, the average revenue curve, the price, and the output level.3. Why does the perfectly competitive firm charge a price that is equal to its average total cost in the long run? Why doesn't it charge a higher price? Why doesn't it charge a lower price?4. What prevents one firm in a perfectly competitive market from gaining a cost advantage over all its competitors by developing some new technology?5. Let's say just one firm somehow develops a new technology, which enables it alone to completely eliminate diseconomies of scale. What would its long run average total cost curve look like then? What would eventually happen to its competitors?

Week 61. What is the difference between a monopoly, a duopoly and an oligopoly?2. Is the supermarket industry an oligopoly? And if so, with respect to whom?3. Use pay-off matrix (I) to show why it would be rational for two supermarket chains to cluster together in the same suburbs. Does this matrix have the form of thePrisoner's Dilemma?4. Use pay-off matrix (ii) to show how one supermarket chain could eventually eliminate another chain from all suburbs of a city.Pay-off matrix (I):Coles presentColes absent

Woollies present$5m, $5m$18m, $0

Woollies absent$0, $18m$0, $0

Pay-off matrix (ii):Coles presentColes absent

Woollies present$1m,-$1m$18m, $0

Woollies absent$0, $18m$0, $0

Top of FormBottom of Form

Week 91. What are the "final goods approach" and the "income approach" to calculating nominal gross domestic product (GDP)?2. What does "real GDP" mean? How do you calculate it (what formula do you use)? If nominal GDP grows faster than the price index, what happens to real GDP?3. What does "economic growth" mean? What does "negative economic growth" mean? What does "recession" mean? How do you calculate economic growth?4. What is "GDP per capita"? If a country's GDP per capita increases, does this imply that the standard of living for the population is increasing?5. What is the relationship between real GDP, potential GDP and unemployment?

Week 101. What is the definition of inflation? Is there more than one measure of inflation?2. Which components of aggregate expenditure are most affected by changes in interest rates? Why?3. What role do costs of production (such as oil prices and real unit labour costs) have on inflation? Why?4. What is the difference between disinflation and deflation?5. Why is deflation regarded as being so bad?6. Why is hyperinflation regarded as being so bad?

Week 121. What are a budget surplus, a budget deficit, and a balanced budget?2. What is expansionary fiscal policy, and contractionary fiscal policy?3. What are automatic stabilisers, and what role to they plays in a business cycle?4. Why does Australia, with its separate states and territories, not have the same fiscal problems as Europe, with its separate countries? (See p.386 of your textbook.)5. According to Keynesian theory, under what circumstances should a government choose to implement expansionary fiscal policy?6. Explain expansionary fiscal policy using Figure 12.2 on page 382 of your textbook.Week 131. What does comparative advantage mean? Give an example.2. What doescompetitive advantage mean? Give an example.3. What is the difference between free trade and fair trade?4. What is a currency exchange rate? Why is it important to the trade balance?5. For each of the following, use supply and demand analysis to show the effect on the exchange rate for Australian dollars: (a)Chinese demand for Australian coal skyrockets. (b) Australiandemand for Chinese movies takes off. (c) Australianinterest rates rise. (d) European interest rates rise. (e)Inflation takes off in the economies of Australia's trade partners.