Elasticity of Demand - Worked Question Paper

SUGGESTIONS FOR ANSWERING TUTORIAL QUESTIONS FOR MODULE 01

INTRODUCTION TO ECONOMICS:

DEMAND & SUPPLY

ELASTICITY

Note:  Questions marked with a [B] are mainly for reviewing “background” and relatively straightforward material.  [E] indicates “extras” questions for deeper learning.  The remaining (unmarked) questions are regarded as “standard”.  For assessment, all three types of questions will be included, but a majority of them will be at the "standard" level.

Answers to Multiple-Choice Questions

1.  c                2.  c                3.  a                4.  c                5.  c        

6.  d                7.  d                8.  d                9.  A                

Suggestions for Answering Short-Answer Questions

1.          Market in Japan for Australian beef:  See Figure 1 below.  The original equilibrium is at the intersection of demand curve D0 and supply curve S0, where price is P0 and quantity traded is Q0.

[pic 1]

2.          If Japan implements a policy of buying more beef from the US then the quantity of Australia’s beef sold in Japan at any given price will fall, because Australian beef and US beef are close substitutes (competing products).  In Figure 1 above, this is shown as a leftward shift in the demand curve, to D1.  Price will fall to P1, and quantity traded will fall to Q1.  Thus, Australia's beef exports to Japan will decline.  

3.        [E]  If no other export markets can absorb this impact, the unsold export supplies must be added to the quantity of beef supplied in the Australian domestic market, thus raising the quantity supplied at each price.  Accordingly, the S-curve in the domestic market for beef will shift to the right. Equilibrium price will fall and equilibrium quantity traded (amount of beef sold domestically) will increase.  See Figure 2 below.

[pic 2]

4.        Computer app for business.

a)        If I charge $10 per unit, total revenue will be $600,000.