Macro & Micro economics

Key Concepts of Market Equilibrium

Assignment (This assignment is worth 20% of total marks for the unit)
Due date:October 31, 2013 at 12 PM
Length: Maximum 3 Pages, including text and diagrams.

The written submission should reflect your understanding and application of the key concepts of market equilibrium. It is expected of no more than THREE pages including text and diagrams and adhere to the academic presentation requirements. Be concise and clear.
Students are encouraged to work with each other to learn the relevant concepts; the submitted work must be of individual student’s own work.

Students must answer both questions.

Question 1 (10 marks)

Explain each of the following using supply and demand diagrams.

(a) When car manufacturing workers’ wages rise, the price of cars increases. (3 marks)

(b) When iPhone 5 is released, the price of older model smart phones such as iPhone 4falls. (3 marks)

(c) When a war breaks out in the Middle East, the price of Petrol rises and the price of Toyota hybrid car rises. (4 marks)
Question 2 (10 marks)

The Australian government administers two programs that affect the market for cigarettes. First, media campaigns and labelling requirements aimed at making public aware of the dangers of cigarette smoking. Second, there is a tax on cigarettes.

(a) With the use of a graph, explain how these two programs affect cigarette consumption and the price of cigarettes. (5 marks)
(b) “A tax on cigarettes is a good way of raising tax revenue for the government.” Discuss. (5 marks)