Three Problem-Solving Questions that require written answers 1. General information 1.1 This group assignment is worth 20 per cent of total assessment and is to be submitted by 5.00pm, Tuesday 10 January 2017.  There are 3 questions and answer all 3 questions. Question 1 is worth 20 marks, and Question 2 and Question 3 are worth 15 marks each, consisting total of 50 marks all together. Then the marks will be converted to a total of 20 mark scale to be uploaded in Moodle for 20 per cent of your total course assessment.  A hard copy of the assignment must be submitted to KOI Librarian in Kent street campus by 5.00pm, Tuesday 10 January 2017. You must keep the copy of receipt after the submission for your own record. You are also required to upload an electronic copy of the assignment in Moodle Turnitin by 5.00pm, Tuesday 10 January 2017.  Late submission will attract loss of 5 marks out of 20 marks (25 per cent), and the assignment submitted after 5.00pm Thursday 12 January 2017 will not be accepted and marked zero. 1.2 This assignment is a group assignment and each group must form a group of three (3) people. Less than three or more than three-people assignment will not be accepted, unless permission is granted by lecturer for special circumstances. 1.3 Names and ID numbers of students in the group must be clearly printed on the Assignment Cover Sheet. A member, who has not contributed to the discussion and assignment, must be marked as "Not contributed" in a bracket following the student's name and ID. 1.4 You must follow an appropriate format explained below. Not following appropriate format will cause a loss of some marks.  All written answers must be clearly typed and printed. Hand-written answers will NOT be accepted.  All assignment questions and sub-questions must be typed in order at the heading.  Separate each main question by different page. For example, if Question 1 (a) (b) (c) and (d) are answered on pages 1-2, then start Question 2 on page 3, etc.  You must analyse, explain and show how and why you draw your answers. Providing just answers without explanation will not receive full marks.  You must also draw and include appropriate and relevant graphs and tables together in your explanation. Draw them using Microsoft Power Point/Word/Excel, NOT hand-drawn. Group Assignment T316 BUS102 Microeconomics T316, Group Assignment due 10 January 2017 Page 2 1.5 Copying the assignment contents from other group assignment is a serious violation of copy right. It will be penalized and attract a VERY heavy loss of marks – "Fail".  It is not difficult to identify the contents that are copied from other group(s). Write the answers in your own English words.  Make sure that nobody in your team shows your assignment to other group(s). Both who show the assignment and who copy the assignment will lose their marks heavily and fail in the assessment. 1.6 Each group must have a coordinator, who will submit a hard copy of the assignment to the KOI librarian and upload an electronic copy of the assignment in Moodle Turnitin. Only ONE COPY of the assignment from each group is required to be submitted (& uploaded). 1.7 Make sure you discuss and work together for ALL THREE questions and MUST read and check the assignment before submission, once completed. Group Assignment T316 BUS102 Microeconomics T316, Group Assignment due 10 January 2017 Page 3 2. Assignment Questions Question 1 – 20 marks Part A: Answer the following questions. Australia produces ethanol from sugar cane, and the land used to grow sugar cane is used to grow food crops. Suppose that Australia's production possibilities for ethanol and food crops are as in the table. (a) If Australia increases its production of ethanol from 40 barrels per day to 54 barrels per day, what is the opportunity cost of an additional barrel of ethanol? (2 marks) (b) Does Australia face an increasing opportunity cost of ethanol? What feature of Australia's PPF illustrates increasing opportunity cost? Explain. (2 marks) The table sets out the demand and supply schedules for banana. (c) Suppose a cyclone destroyed some banana farms in QLD and the quantity of banana supplied decreased by 100 boxes a week at each price. But at the same time the demand for banana increased by 100 boxes a week at each price. Explain what would happen to the market supply and demand curves? How and why would the market equilibrium price and quantity adjust at the end? What would be the new equilibrium price and quantity? Draw a graph and illustrate the changes on your graph. (4 marks) Part B: Answer the following questions. Price (dollars per box) Quantity demande d Quantity supplied (boxes a week) 12 100 800 10 200 700 8 300 600 6 400 500 4 500 400 2 600 300 Ethanol (barrels per day) Food crops (tonnes per day) 70 0 64 1 54 2 40 3 22 4 0 5 Group Assignment T316 BUS102 Microeconomics T316, Group Assignment due 10 January 2017 Page 4 (d) When Yeon's income was $2,200, he bought 5 kgs of rice a month. Now his income is $3,300 and he buys 4.75 kgs of rice a month. Calculate Yeon's income elasticity of demand for rice. Show your calculation. Is rice income elastic or inelastic? Is rice normal good or inferior good? (3 marks) Suppose an outbreak of mad cow disease cuts the quantity of beef demand by 10 per cent. (e) If the price elasticity of demand for beef is –1.25, by how much would the price of beef have fallen if the demand for beef increased by 10 per cent? Show your calculation. (3 marks) (f) Market analysts estimate that the change in the price of beef will decrease the price of pork by 20 per cent and decrease the quantity demanded for beef by 10 per cent. What is the cross price elasticity of demand for beef with respect to the price of pork? Does the elasticity indicate that beef and pork are substitutes or complements? (3 marks) (g) Market analysts estimate that, a 10 per cent increase in the change in the price of pasta sauce will decrease the quantity of spaghetti noodle demanded by 6 per cent. What is the cross elasticity of demand for spaghetti noodle with respect to the price of pasta sauce? Does the elasticity indicate that spaghetti noodle and pasta sauce are substitutes or complements? (3 marks) Question 2 – 15 marks Group Assignment T316 BUS102 Microeconomics T316, Group Assignment due 10 January 2017 Page 5 Part A: Answer the following questions. The table shows the demand and supply schedules for US wheat market. The US Farm Bill 2012 indicates that the domestic price of wheat will be set at $300 per tonne, which is above the market equilibrium level of $250 per tonne, in order to support for domestic wheat growers. At the market equilibrium, 1,000 kilo tonnes (Kt) are supplied. (a) The US Farm Bill 2012 indicates that the domestic price of wheat is set at $300 per tonne, which is above the market equilibrium level of $250 per tonne, in order to support for domestic wheat growers. On a graph, show if it creates a shortage or a surplus in the market for wheat, and explain why and by how much. (2 marks) (b) On a graph, explain how the price control in the US would change the consumer surplus, producer surplus, and deadweight loss in the domestic wheat market. Assume that the US does not trade wheat internationally. Also, calculate the changes in consumer surplus, producer surplus and deadweight loss. (Remember 1 kilo tonne = 1,000 tonnes) (8 marks)