Exam information

ECON7002
Course code and name
Economics for Commerce
Semester Semester 1, 2020
Exam type Online, non-invigilated
Exam date and time Please refer to your personalised timetable
Exam duration 24 hours
You have a 24 hour window in which you must complete your exam. You
can access and submit your exam at any time within the 24 hour
Exam window window. Even though you have the entire 24 hours to complete and
submit your exam, the expectation is that it will take most students
between 2-3 hours.

Reading time has not been formally allocated for online exams, however
Reading time students are encouraged to review and plan their approach for the exam
before they start. The total exam time should be sufficient to do this.

Weighting This exam is weighted at 45% of your total mark for this course.
Permitted materials This is an open book exam – all materials permitted.
Required/recommended
materials calculator; bilingual dictionary; phone/camera/scanner

 Answer ALL questions.

 Total questions: 5
 Total marks: 45

Answers to the exam must be neatly hand written. Start each question on
a new paper sheet.
Instructions
Scan your exam answers and save them as one pdf document. If you do
not have access to a flatbed scanner you can use a phone app such as
“Adobe Scan” or “Microsoft Office Lens”.

Submit your file through Turnitin in the Final Exam folder on Blackboard.

Should you have any issues about the assessment task, you should
contact the Course coordinator during business hours between 8am and
5pm (Brisbane time –GMT +10) at [email protected]
Who to contact If you experience any technical difficulties during the exam, contact the
Library AskUs service for advice. You should also ask for an email
documenting the advice provided so you can provide this to the course
coordinator immediately.
 This is an open book exam. You will have access to your own notes,
course texts, and other materials.
The normal academic integrity rules apply.
 You cannot cut-and-paste material other than your own work as
answers.
 You are not permitted to consult any other person – whether directly,
online, or through any other means – about any aspect of this
Important exam assessment during the period that this assessment is available.
condition information If it is found that you have given or sought outside assistance with this
assessment then that will be deemed to be cheating and will result in
disciplinary action.
By undertaking this online assessment you will be deemed to have
acknowledged UQ’s academic integrity pledge to have made the following
declaration:
“I certify that my submitted answers are entirely my own work and that I
have neither given nor received any unauthorised assistance on this
assessment item”.
THIS PAGE LEFT BLANK INTENTIONALLY
 ANSWER ALL FIVE (5) QUESTIONS.
Show all workings if required. Partial credit may be awarded if a
substantial part of the answer is provided. Marks are as indicated.
(Total Marks: 45)

Question 1 [14 marks]

A monopolist faces the demand curve P =11 – Q,
where P is measured in dollars per unit and Q in thousands of units. The monopolist
has a constant average cost of $6 per unit.
Answer the following questions, showing all workings.

a) Calculate the monopolist’s profit-maximizing price and quantity. Calculate the

monopolist’s profit.
(4 marks)

b) Draw the average and marginal revenue curves and the average and
marginal cost curves for the monopolist including the area of profits (label the
diagram accurately showing prices and quantity, along with all curves for full
marks).
(5 marks)

c) A government regulatory agency sets a price ceiling of $7 per unit.

Calculate what quantity will be produced and explain why it will be
produced at that quantity.
(3 marks)

d) Using the new price ceiling and your quantity produced figures from
part c), calculate the new profit for the monopolist.
(2 marks)

EXAMINATION CONTINUES ON NEXT PAGE

Question 2 [10 marks]
In the perfectly competitive market for bicycles, the marginal private benefit (MPB)
to consumers is
MPB(Q) = 20 − Q
and the marginal private cost (MPC) to producers is

MPC(Q) = Q.

The marginal external benefit of each bicycle is a constant MEB = 4. There are no
external costs associated with the consumption or production of bicycles.

a) State whether there is a positive or negative externality associated with

the market for bicycles.
(1 mark)
b) Calculate the competitive market equilibrium price and quantity in the
absence of government interventions in this market. Show your workings.

(2 marks)
c) Calculate the efficient market quantity that maximizes total social
surplus, using marginal social benefit and marginal social cost of bicycle
output. Show your workings.
(3 marks)

d) State the level of the Pigovian unit tax or unit subsidy required to achieve
the efficient level of output. (i.e. how big should the tax or subsidy be?)
(1 mark)

e) Given the Pigovian unit tax or subsidy from your answer to part (d), and the
efficient market output from your answer to part (c), what is the price that
consumers pay? What is the price that producers receive? Show your
workings. (Hint: The marginal private benefit curve is the demand curve and the
marginal private cost curve is the supply curve.)
(3 marks)

EXAMINATION CONTINUES ON NEXT PAGE

Question 3 [6 marks]

Using the economic growth model, concisely explain the impacts of each of the
following events described in (a) and (b) on GDP per capita.
Illustrate your answer with an appropriate diagram of the per-worker production
function similar to the one above. Be sure to draw shifts of the production function if
required. Assume that no other change in the economy has occurred, besides those
described.

a) The country develops a new Artificial Intelligence (AI) technology that

increases output in the Manufacturing and Information, Communication
and Technology (ICT) sectors of the country, the country’s largest
export oriented sectors. (Hint: Consider if AI represent an important
form of technology for the manufacturing and information
communication and technology sectors.)
(3 marks)

b) A large number of highly educated professionals arrive in this country.

(Hint: Analyse human capital as a form of technology.)
(3 marks)

EXAMINATION CONTINUES ON NEXT PAGE

Question 4 [8 marks]

Suppose the Reserve Bank of Australia (RBA) buys $100 million worth of bonds
from banks.

a) State whether this is expansionary or contractionary monetary policy.

(1 mark)

b) State whether the RBA’s purchase of bonds will increase or decrease

interest rates in the economy.
(1 mark)

c) Illustrate the short-run impact of the RBA’s purchase of bonds from

commercial banks on equilibrium real output and price levels with an
appropriate AD-AS diagram. Briefly explain the shifts in the AD and/or the
SRAS curves.
(4 marks)

d) Suppose the action taken by the RBA is a response to a sudden and

dramatic fall in Australian net exports. Is the RBA’s purchase of bonds an
optimal response? Briefly explain your answer.
(2 marks)

EXAMINATION CONTINUES ON NEXT PAGE

Question 5 [7 marks]
The latest labour survey for the country of Aldovia reveals that the working age
population is 32,000, and the labour force is 20,000. 14,000 people are in full-time
employment. However, 18,000 people reported that they have been paid for at least
one hour of work in the previous week.

a) Calculate the labour force participation rate. Show all workings.

(1 mark)

b) Calculate the unemployment rate. Show all workings.

(1 mark)

c) Given the information provided above, can the underemployment rate be

calculated? If so, calculate the underemployment rate. If not, explain
why.
(2 marks)
d) Suppose the rate of structural unemployment is 2% and the rate of
frictional unemployment is 5%. Using the total unemployment rate you
have calculated in part b), calculate the cyclical rate of unemployment. Is
the country of Aldovia in an economic contraction or expansion?
(2 marks)

e) Suppose 1,000 previously unemployed workers have given up looking for

work altogether. State whether this will increase or decrease the
unemployment rate. No explanation required.
(1 mark)

END OF EXAMINATION