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ECO1002 Individual Assignment

Short Answer Questions–based on Economic Theory


Do this assignment individually.

  • You may need to do research of your own as well as reading the articles provided.
  • Addresseachquestiondirectly.Youdonotneedto presentanswersin essay orreportform.
  • Make sure you explain your diagrams and answer all parts of each question.

You don’t need to write a lot to answer each question. The word limit is around 800-1500 words.

  • Reference your answers if you are using in formation from another source using in-text referencing and include are reference list at the end of the assignment. You do not need to reference lectures and tutorials.
  • 5 marks are a warded for correct use of in text referencing and are reference list at the end of the assignment.

Some useful sources:

Part1: FirmPerspective[25marks] Source1:

Students trim University of Canberra’s academic gown price monopoly

Date: November 8,2014

Matthew Raggatt

It’s the seemingly nevi table cost that goes with being handeda university degree,but two Canberra n shaved one their bit to save well-dressed students money on graduation day.

Asthedebateoverderegulationandsoaringdegreescostscontinuesaroundthenation,Australian National University(ANU)alumniEricLiuandHaosiZhanghavestartedtheirownbusinesssellingdiscountedacademic gowns.Their challenge to the established market appears to have forceda 30 percent price cut from the University of Canberra.

Mr Liu, 25, now studying a masters in law,said the pair’s Uni Gowns business began in July and was motivated more by saving students than making profit.”Basically the idea came from some of our friends at the ANU and UC who were complaining about how ridiculously expensive[graduation gowns]are,”he said.

“We think of it as a business to challenge the universities’ UCU nionmono poly[previously there was only one supplier for ANU Australian National University]and collapse the price.”A gown,hood and mortar board area mandatory part of graduation ceremonies around the nation. Uni Gowns sold about 30o ft heir$89 sets in the company’s first outing at the UC graduations last month.

Mr Liu said the university has dropped their hiring price for the set from$130 to $110 as a result, which includes the mortarboard to keep,but went further to offer a special$89.95 purchase at the October graduation.

…The UCU nion, a wholly-own edentity of the university,has previously been the exclusive seller of the graduation wear.

Union chief executive Joe Roff could not be reached for interview this week,but said UC welcome d competition particularly where students benefit.




  1. 1. Based on the article what market form did the market for graduation regalia (a gown,hood and mortar board)at ANU most closely resemble be fore Mr.Liu started his Uni Gowns business?Why?Represent this using an economic diagram and there Levant price from the article.(10 marks)

2. Once the students started their rival business(Uni Gowns) what form would the market for a graduation set at ANU have taken?Explain your answer with reference to theory. How does the price and quantity in this market compare to the price and quantity before the students started this business?(5 marks)

3. Describe a business that youa nd your friends can start this year.What market form (i.e.monopolistic competition) is the market you want to operate in?How will this market form affect your profits?Drawa diagram to represent the market your business will be operating in and your individual cost curve You will need to do some research here.(10 marks)

Part2: MacroeconomicPerspective[35marks] Source1:

Australia’smisery indexata six-yearhigh

The Economy


The RBA has lower edits growth and inflation forecasts for the year ahead, citing its expectation that mining investment will“decline much further”and budget cuts at the state and federal level Photo: Glenn Hunt

A deepening glooma cross the largest developed economy to escape recession during the global financial crisis shaping up as one of the toughest challenges yet for Reserve Bank of Australia chief Glenn Stevens.

Australia’s misery index– the sum of unemployment and inflation rates–is at 9.0,the highest since 2008,when the collapseofLehmanBrothersHoldingsfrozecreditmarketsaroundtheworldandtriggeredthedeepest recession in the US since the Great Depression.


Sincethosenumberswereissued,theunemploymentrate hasjumpedto a 12-yearhighof6.4percent…

The Australia nun employment rate surpassed the US level last month for the first time since 2007. The American misery index was 8.2 for June and for Britain it stood at 8.3.

Australia’s central bank also lowered its growth and inflation forecasts for the year ahead,citing its expectation that mining investment will“decline much further”and budget cuts at the state and federal level. Prime Minister Tony Abbott’s government is cutting jobs and spending and raising taxes to tackle a budget deficit estimated to have swollen to $49.9 billion in the year to June.

The economy’s spare capacity has meant private-sector wagesgre wat the slowest pace on record in thesecond quarter,statisticsbureaudatashowedlastweek, whiletheRBA hasforecastinflationwillcoolfrom3 percent

lastquarterassistedbythegovernment’sscrappingof acarbontax….




Chart12: Output and unemployment gap estimates


1. Why might the misery index consist of measures of unemployment and inflation rates?What are the negative consequences of high unemployment (especially cyclical unemployment if it persists for a long time)andhigh inflation for the economy? (5 marks)

2. Based on the information in the above article and your own research what is likely happening to Australia’s real GDP in 2015?Explain why with reference to theory.(5 marks)

3. Useanaggregatedemandandsupplymodeltodemonstratewherethe Australianeconomyiscurrentlyoperatingin relationtofullemploymentand explainthereasonsforth Basedonyourdiagram,theabovesourcesand yourresearchwhatphaseof the businesscycledoyouthinktheAustralian economyiscurrentlyin?Explainyourreasoning.(10marks)

4. Basedonyourresearchwhattypeoffiscalpolicyisthe governmentpursuing at themoment?Doyoubelievethisisappropriategiventhestateof the economyat themoment?Explainwhyorwhynotwiththeaid of adiagram. (10 marks)

5. Basedonyourresearchwhattypeof monetarypolicyistheRBA pursuingat themoment?(5marks)

Donotforgettoincludeareference listforanysources apartfromlectures or tutorials.Youalsoneedtoincludein-textreferences.Pleaseseereferencingguide ontheportal.Both of these willcountfor5marks.

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