Economics Assignment

Answer all four (4) questions. Maximum of 500 words for each question. Use diagrams where appropriate to enhance and explain your response. Provide supporting evidence and references where appropriate to justify your arguments. Please note that in answering economics questions it is important to first identify which part of economic theory you should be drawing on in order to respond appropriately. Your response should always be firstly identifying what part of theory the question relates to and explaining that theory, how the theory helps to answer the question

and then presenting the solution to the question poised.

Question 1. Suppose you are in charge of sales at a pharmaceutical company, and your firm has

a new drug that causes bald men to grow hair. Assume that the company wants to earn as much

revenue as possible from this drug. If the elasticity of demand for your company’s product at the

current price is 1.4, would you advise the company to raise the price, lower the price, or to keep

the price the same? What if the elasticity were 0.6? What if it were 1? Explain your answer.

Question 2. Automobile manufacturing is an industry subject to significant economies of scale.

Suppose there are four domestic auto manufacturers, but the demand for domestic autos is no

more than 2.5 times the quantity produced at the bottom of the long-run average cost curve.

What do you expect will happen to the domestic auto industry in the long run?

Question 3. For a high-income economy like Australia, what aggregate production function

elements are most important in bringing about growth in GDP per capita? What about a middle￾income country such as India? A low-income country such as Afghanistan?

Question 4. Imagine that the government statisticians who calculate the inflation rate have been

updating the basic basket of goods once every 10 years, but now they decide to update it every

five years. How will this change affect the amount of substitution bias and quality/new goods

bias?

Presentation

The following points are a general guide for presenting assessment items.

• Responses to assessment items should be typed. Use 1.5 spacing.

• Use a wide left margin. Markers need space to be able to include their comments. Use a

standard 12pt font such as Times New Roman, Calibri or Arial.

• Left- justify body text.

• Include a separate title page with your name, student number, subject code, assessment

question. Number your pages (except the cover page).

• Use a header or footer with your name and student number on each page.

• Always keep a copy of your assessments. Both a hard copy and an electronic copy.

• Most importantly, always use your spelling and grammar checker, but remember that this

does not pick up all errors. You must still manually and carefully edit your work.

• You need to appropriately reference all the articles, reports and web-sites you employ in