Assignment 1
Due: 9pm Monday, 17 August, 2015 (Week 9)
Weighting: 25%
Note that when you are answering questions that require mathematical calculations, you should provide details as to how the answers were derived. In completing your answers, you should use graphs wherever possible. Always provide a brief explanation of each graph, including how it relates to your overall answer/argument.
Question 1
• The following is a set of hypothetical production possibilities for a nation A.
Combination Bicycles
(thousands) Wheat
(thousands of tonnes)
A 0 10
B 2 9
C 4 7
D 6 4
E 8 0
• Plot the production possibility for nation A.
• What is the opportunity cost of the first 2000 bicycles produced?
• Determine between which point the opportunity cost per thousand bicycles is highest.
• Show what would happen to the production possibility frontier if nation A introduced an improved fertiliser that is used by its wheat farmers.
• Explain how the production possibilities frontier reflects the law of increasing opportunity costs.
(Parts i to v are worth a mark each.)
• Compare the advantages and disadvantages of a planned economy and a free-market (300 words maximum).
(5 marks)
Question 2
a. The Australian wine industry has prospered over the last two decades, expanding rapidly into overseas markets. However, in recent years it has faced some problems. Use demand and supply analysis to explain how these two factors (problems) stated below would affect the price and quantity of Australian wine.
i) There has been a rapid increase in the Australian production of wine grapes.
ii) New wine producers in China and India are producing good quality low cost wine.
(Parts i and ii are worth 2 marks each.)
• In an attempt to support the Australian wine industry the government sets a minimum price. Do you think this is a good idea? Explain your decision using graphs.
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