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Economics-Opportunity cost and comparative advantage

Description Part A: Key tools from topics 1 and 2 Question A1: Opportunity cost and comparative advantage Zahran and Mary are renovating a house. They each have 4 hours a day they can spend on their renovation work (painting walls and tiling). Zahran can paint 1.5 walls in an hour or lay 0.4 square metres of tiles in one hour. Mary can paint 0.5 walls in an hour, or lay 1 square metre of tiles in one hour. For the following parts, show your workings and define any relevant economic concepts. Explain fully how you arrived at your answer. a) What are the opportunity costs for Mary and Zahran for painting? For tiling? b) Compare the output of painted walls and square metres of tiles if: i. Mary and Zahran each spent 2 hours painting and 2 hours tiling, or ii. Mary and Zahran specialised in their comparative advantage activity for the 4 hours each. 4 + 1 + 3 = 8 points Question A2: Supply, demand and equilibrium My Kitchen Rules features a tomato special, with contestants showing new and tasty ways to use tomatoes. Following this, the price of pizzas rises. Use two demand and supply diagrams (one for each relevant market) to explain why a rise in the popularity of tomatoes might result in an increase in the price of pizzas. Label and explain your diagrams, identify whether the demand curve, supply curve or both curves shift in each market, and illustrate and explain what happens to price and quantity in both markets (No need to use actual numbers.) 5 points for each market diagram and explanation = 10 points Question A3: Elasticity The owners of Carciti car park are considering reducing their car parking rates to attract more customers in the hope that the extra customers will increase the revenue they receive from car parking. The current price is $4.00 per day, and 350 car park permits are sold every day. The owners know that reducing the price from $4.00 per day to $3.10 will result in 400 car park permits sold per day. Page 3 of 7 a) What is the price elasticity of demand for car parks? Include an explanation of what elasticity of demand measures. b) Will the increase in the number of car park spaces sold per day increase the owners’ total revenue? Explain why or why not with reference to your answer to part (a). 4 + 3 = 7 points Part B: Subsidies for farmers (GLOs 4 and 8) Question B1: The model. a) Draw a demand and supply model to illustrate the effects of a government subsidy paid to milk farmers for every litre of milk they sell. (Chapter 6 of the text can help you with this). Assume that demand for milk is relatively inelastic, while the supply of milk is relatively elastic. Illustrate and explain what happens to the price farmers receive, the price buyers pay, the cost to government and the quantity of milk sold. (Do not use actual numbers, but rather symbols such as P1 , Q1 etc. Make sure you define what the symbols you use represent.) b) Who benefits most from the subsidy in this scenario – milk producers or milk consumers? Explain your answer. c) Identify the dead weight loss of the milk subsidy on your diagram, and explain why it arises. 4 + 2 + 2 = 8 points Question B2: Other implications. Read John Freebairn’s article titled “Drought is inevitable, Mr Joyce” as published in The Conversation on 28 August 2018. You can access the article via the following link: a) Identify and explain two unintended consequences of subsidies to farmers that Freebairn’s article suggests might arise. (That is, effects other than raising the price of milk to assist farmers, which is an intended consequence of the subsidy.) Discuss problems that might arise from these unintended consequences. b) How else might farmers be assisted? Support your discussion by referencing relevant facts and points of view from at least one other source. (You can follow the links to other articles that are embedded within the Freebairn article, or find other sources yourself.) ALL sources must be appropriately referenced. 6 + 6 = 12 points 5 additional points are reserved for proper referencing and quality of writing, taking the total to 50 points. Your score out of 50 points will be converted to a grade out of 25 marks, or 25% of your final result for the unit.

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