The purpose of this task is to demonstrate your understanding of the economic concepts and models you have learned in the course in topics 2, 3, 8 and 9 by relating them to a real-world situation.
These course objectives are covered by the assignment.
1. Describe and utilise the fundamental tools, methods and language of economics to analyse resource allocation issues
2. Describe the impact of incentives and use economic models to illustrate how agents and economies respond to incentives
3. Identify the limitations of the market mechanism and analyse the role of government in affecting markets and decision-making in the general economy
4. Apply economic principles and concepts to analyse business cycles and monetary and fiscal policy in an open macroeconomy, and to demonstrate the significance of trade and globalisation.
Questions:
Q1. Using the demand and supply model, explain and illustrate graphically, why ginger prices have increased compared to last year.
Hint: Make sure you discuss the equilibrating process, and clearly outline the assumptions in discussing the factors causing change in price and quantity.
Q2 (a). Assume ginger is sold in a perfectly competitive market and firms are making zero economic profit. Explain and illustrate graphically, the effect of increase in market price on the short run position of a single firm selling ginger. (Hint: Make sure your graph includes the firm’s demand curve, marginal revenue curve, marginal cost curve and average total cost curve and also explain the profit maximising position
of a firm)
Q2 (b). Based on the short run position identified in Q2 (a) explain and illustrate graphically effect of entry/exit on the long run position of the firm. (Hint: your answer should include graphs for both market as well as individual firm.)
