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PART I (12 marks) Q1. Illustrate a housing rental market of a hypothetical city MQ with an effective rent ceiling using a diagram of supply and demand. Label consumer surplus, producer surplus, search

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PART I (12 marks)
Q1. Illustrate a housing rental market of a hypothetical city MQ with an effective rent ceiling
using a diagram of supply and demand. Label consumer surplus, producer surplus, search
cost and deadweight loss. (4 mark)
Q2. Using a separate diagram, show the impact of population growth on the housing rental
market in MQ. Show the change in the black market price. Show the change in the quantity
traded in the market. (2 mark)
Q3. Given population growth from Q2, explain the changes in consumer surplus, producer
surplus, ...

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Question Preview:

PART I (12 marks)
Q1. Illustrate a housing rental market of a hypothetical city MQ with an effective rent ceiling
using a diagram of supply and demand. Label consumer surplus, producer surplus, search
cost and deadweight loss. (4 mark)
Q2. Using a separate diagram, show the impact of population growth on the housing rental
market in MQ. Show the change in the black market price. Show the change in the quantity
traded in the market. (2 mark)
Q3. Given population growth from Q2, explain the changes in consumer surplus, producer
surplus, search cost and deadweight loss resulting from this population growth. (2 mark)
Q4. Read the article “Controversial new rent-bidding app ‘a threat to affordability” as linked here:
http://www.news.com.au/finance/real-estate/controversial-new-rentbidding-app-a-threat-toaffordability/news-story/9b613807f501927e93b3c1c90e83b07d
Suppose Rentberry is launched in MQ. Discuss whether this can improve efficiency of the
housing rental market based on search costs and consumer surplus you illustrated in Q1. (2
mark)
Q5. Discuss whether Rentberry can improve fairness of the housing rental market. (2 mark)
 ECON111 MICROECONOMIC PRINCIPLES S1 2017
PART II (4 marks)
Read the article “Our addiction to Apple is why its profits are soaring” as linked here:
http://theconversation.com/our-addiction-to-apple-is-why-its-profits-are-soaring-36854
Based on this article, explain how Apple’s sales may increase sales despite its ‘seemingly
inflated prices’ using the total revenue test. (Maximum 60 words).
 ECON111 MICROECONOMIC PRINCIPLES S1 2017
PART III (20 marks)
Read the article “Why the government should tax unhealthy foods and subsidise nutritious ones”:
http://theconversation.com/why-the-government-should-tax-unhealthy-foods-andsubsidise-nutritious-ones-72790
Answer the following questions.
Q1. ‘Excise’ and ‘GST’ are common taxes used in Australia. Do your own research and explain
the difference between the two. Identify the source of information. Is the tax on unhealthy
foods described in the article excise or GST? (2 mark)
Q2. Using the demand and supply model, show the potential impact of this tax on the
equilibrium price and quantity in the market of unhealthy foods. (2 mark)
Q3. What is the purpose of this tax? Will the purpose of the tax be achieved if implemented?
(2 mark)
Q4. On the same diagram, show the change in consumer surplus, the change in producer
surplus, and the government’s tax revenue. Explain who, amongst consumers, producers and
the government, loses from the tax on unhealthy foods. (4 marks)
Q5. Identify the dilemma that policy makers face by discussing the gains and losses of
imposing the tax on unhealthy foods. (4 mark)
Q6. Subsidising the market of healthy foods is known to increase both consumer and producer
surplus. Now consider both the tax on unhealthy foods AND the subsidy on healthy foods at
the same time. Discuss the impact of this combination of taxes and subsidy on i) consumers,
ii) producers of unhealthy foods, and iii) producers of healthy foods. (6 marks)
 ECON111 MICROECONOMIC PRINCIPLES S1 2017
PART IV (24 marks)
Australia is considered to have a comparative advantage in producing beef, and Japan is
considered to have a comparative advantage in producing cars.
Q1. In trade between Australia and Japan, which country should specialise in beef production
and which country should specialise in car production? Which country will export cars and
import beef? (2 marks)
Q2. Draw a diagram that shows the impact of free trade with Japan on the prevailing price in
Australian car market. Does trade increase or decrease consumer surplus and producer
surplus? Explain the changes by labelling areas on the diagram. (4 marks)
Q3. How does trade change total surplus in comparison to before trade? Does Australia gain
from trade? (4 marks)
Q4. Suppose that the Australian government imposes tariff on imported goods. In comparison
to the case of free trade, does the tariff increase or decrease consumer surplus and producer
surplus in the Australian car market? Draw a separate diagram and explain the changes by
labelling areas on the diagram. (4 marks)
Q5. How does the tariff change total surplus in comparison to the situation before the tariff?
Does Australia gain from imposing tariff? (4 marks)
Q6. Based on your analysis above, rank the following three situations from the most beneficial
to the least from i) the consumers’ perspective, ii) the producers’ perspective, and iii) the
perspective of Australia as a nation (6 mark)
 no trade
 free trade
 trade with tariff

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Solution preview

PART I (12 marks)

Q1. Illustrate a housing rental market of a hypothetical city MQ with an effective rent ceiling using a diagram of supply and demand. Label consumer surplus, producer surplus, search cost and deadweight loss. (4 mark)

Solution 1: The below diagram depicts impact of effective rent ceiling on supply and demand of a housing rental of a hypothetical city MQ:

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